6 minute read
Since most people already filed their tax return for 2021, everyone should begin planning for their 2022 tax returns. One of the major changes that taxpayers will need to plan for are the new changes to the Earned Income Tax Credit (EITC), effective for tax year 2022.
The EITC is one of the largest refundable tax credits available on a federal tax return. The EITC gives low- to moderate-income workers and families a tax break and a potential refund if the taxpayer does not owe tax. The amount of credit received is determined by the taxpayer’s income and number of children. In effect, the EITC acts as a wage subsidy to the lowest-paid workers.
The EITC was temporarily, substantially expanded for the 2021 tax year by the American Rescue Plan Act to expand the number of people who had access to the credit. Notably, some of the new changes are set to expire after 2021, while other changes will continue beyond 2021. Taxpayers will want to review these changes and ensure they are planning ahead for the changes occurring during tax year 2022.
What 2021 Changes Expire for Tax Year 2022?
What 2021 Changes Continue into Tax Year 2022 and beyond?
In 2021 and beyond the amount of investment income that a taxpayer can receive and still be eligible for the EITC is less than $10,000, adjusted each year for inflation. This limit is a significant increase, up from $3,650 in 2020.
Married but separated spouses can elect not to be treated as married on their tax return when determining the EITC. To qualify for this election, the spouses cannot file jointly, must have a qualifying child living with them for more than half the year, and either: (1) “Do not have the same principal residence as the other spouse for at least the last six months out of the year,” or (2) “Are legally separated according to their state law under a written separation agreement or a decree of separate maintenance and not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed.”
Single taxpayers and couples with children who have Social Security numbers (SSNs) can claim the EITC, even if their children do not have SSNs.
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Like prior years, the EITC allows for single individuals and married couples—both with or without children—to qualify for the credit. To qualify, the taxpayer(s) must not surpass an income threshold, which is determined by the number of dependents and the filing status of the taxpayer(s).
Other taxpayers who may qualify for the EITC include (1) taxpayers who live in a non-traditional family setting, such as a grandparent raising a grandchild; (2) members of the armed forces, subject to special qualifying rules; (3) clergy members or ministers, subject to special qualifying rules; and (4) taxpayers with disabilities or a taxpayer who cares for a disabled dependent.
Number of Dependents | Maximum Adjusted Gross Income (single or head of household) | Maximum Adjusted Gross Income (married filing jointly) | Maximum EITC |
---|---|---|---|
0 | $21,430 | $27,380 | $1,502 |
1 | $42,158 | $48,108 | $3,618 |
2 | $47,915 | $53,865 | $5,980 |
3+ | $51,464 | $47,414 | $6,728 |
These amounts are changing in 2022 to:
Number of Dependents | Maximum Adjusted Gross Income (single or head of household) | Maximum Adjusted Gross Income (married filing jointly) | Maximum EITC |
---|---|---|---|
0 | $16,480 | $22,610 | $560 |
1 | $43,492 | $49,622 | $3,733 |
2 | $49,399 | $55,529 | $6,164 |
3+ | $53,057 | $59,187 | $6,935 |
EITCs received are for childless taxpayers. Childless taxpayers 2022 and beyond will receive a much lower EITC amount and will have stricter income thresholds to qualify.
The EITC can provide significant benefits to low- to moderate-income individuals, especially since qualifying for the credit is not solely dependent on whether the taxpayer has children. With credits all the way up to over $6,700, the EITC can offer large tax savings to taxpayers. Ensure you are up-to-date on all the most important tax changes.
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