By Don Dill, Senior Tax Analyst, Internal Revenue Service, SPEC
As the 2020 tax filing season kicks into high gear, it is a great time to remind individual taxpayers, service providers and organizations that provide services to low- and moderate-income (LMI) individuals and families to learn more about the Earned Income Tax Credit (EITC).
The EITC can make a big difference in the lives of working individuals and families. During the 2019 filing season, more than 25 million eligible individuals and families received over $63 billion in EITC benefits. The great news is that the EITC is a refundable credit which can help offset any taxes owed or could result in a larger refund for eligible taxpayers.
For tax year 2019, individuals and families earning less than $56,000 could be eligible for the EITC. Eligible families with three or more qualifying children could get a maximum credit of up to $6,557, while individuals without children could earn up to $527 of EITC.
The Internal Revenue Service (IRS) recommends that all individuals and families who earned around $56,000 or less learn about EITC eligibility and use the EITC Assistant – both found on the IRS website at irs.gov – to find out if they qualify. The tool will help them determine their filing status, if they have a qualifying child or children, if they qualify to receive the EITC and estimate the amount of the credit they could get.
There are a couple of key items to consider with respect to the EITC and persons with disabilities. Eligibility for the EITC hinges primarily on whether an individual or family has earned income during the tax year. The IRS considers disability retirement benefits as earned income until you reach minimum retirement age. Minimum retirement age is the earliest age you could have received a pension or annuity if you did not have the disability. After you reach minimum retirement age, IRS considers the payments your pension and not earned income and cannot be used to determine EITC eligibility.
Benefits such as Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), or military disability pensions are not considered earned income and cannot be used to claim the EITC. Additionally, payments you received from a disability insurance policy that you paid the premiums for are not earned income. It does not matter whether you have reached minimum retirement age.
In general, to claim a child for the EITC, the child must have a Social Security number and pass the age, relationship, residency and joint return tests. In general, a qualifying child must be younger than the person claiming the child and younger than 19 (24 if the child is a full-time student) at the end of the year. However, for a qualifying child with a disability, there is no age limit and the child does not have to be younger than you if the qualifying child is permanently and totally disabled. Finally, if the qualifying child receives disability benefits, you can still use the child for EITC purposes.
Refunds received from the EITC, the Child Tax Credit (CTC) or other refundable credits are not considered income and are not counted as a resource for at least 12 months from when you apply for benefits or assistance under any federal program or under any state or local program financed in whole or in part with federal funds. Of course, it is always best to check with your local benefits coordinator to find out if your benefits fall under this provision.
The most critical step in claiming the EITC? An individual must file a tax return to determine their eligibility and claim the EITC. Many miss out because they owe no tax so do not file a tax return.
Special assistance is available for persons with disabilities when it comes to filing their tax return for free. If you are unable to complete your tax return because of a disability, you may be able to obtain assistance from an IRS office. Assistance is also provided to low- and moderate-income individuals and families at local free tax preparation sites in the Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs sponsored by IRS.
Don Dill is a Senior Tax Analyst in the Wage and Investment (W&I) Division of the Internal Revenue Service based in the W&I headquarters in Atlanta, Ga. Don has worked for the Internal Revenue Service for over 30 years in various positions. Currently, Mr. Dill’s position within the Stakeholder Partnerships, Education and Communication (SPEC) operating unit of W&I, has him partnering with key national organizations (including community, faith-based, social, public organizations) striving to inform and educate shared customers concerning their tax responsibilities. His focus is working with strategic national partners to expand the footprint and impact of the Volunteer Income Tax Assistance and Tax Counseling for the Elderly free tax preparation programs, as they provide access to free tax preparation services and financial capability opportunities to underserved market segments including persons with disabilities, the elderly and low- to moderate-income individuals and families.