tax tips — January 20, 2021

Unemployed in 2020 But Need the EIC? Use Your 2019 Earned Income

by Susannah McQuitty

Woman choosing which year’s earned income to use on her 2020 tax return

 

The Earned Income Tax Credit (EIC or EITC) is one of the most popular tax breaks for low-to-middle income households who fall within that income window, but one of the requirements is that you must have earned income during the year.

Fortunately, that rule is being somewhat tweaked for tax returns filed in 2021; because of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, you can use your 2019 earned income to qualify for the EIC on your 2020 tax return.

What qualifies as earned income for the EIC?

Earned income of any amount greater than $1 qualifies you for the credit, but not every type of income is considered “earned”. For example, unemployment benefits, interest and dividends, alimony, and child support are not earned income and don’t count towards the EIC.

On the other hand, any wages, salary or tips where federal income taxes are withheld on Form W-2 count towards earned income. You can also count income from a job where your employer or client didn’t withhold tax, such as driving for rideshares or food delivery services, selling goods online, or other freelance work.

You can see a fuller list in our Tax Guide for the EIC.

Should I use my earned income from 2019 or 2020 for the EITC?

That actually gets a little complicated—the credit is based on family size, filing status and earned income, and the IRS uses an enormous table with graduated scales and phaseout thresholds to determine how much credit you’ll receive.

Here’s the basic gist: The credit amount continues to get larger as income approaches the threshold, and the credit shrinks as income scales above the threshold. When income reaches the upper end of the phaseout, you lose the credit.

All that being said, you don’t have to become an EIC expert to claim the credit. When you file with 1040.com, you’ll simply enter your 2019 earned income amount and, based on your tax situation, we’ll calculate which amount (2019 or 2020) gives you the most credit.

How much is the Earned Income Credit worth?

For tax year 2020, the EIC has different ranges and max amounts depending on your household size and filing status:

Children Claimed
Max AGI if filing as Single, Head of Household, or Widowed Max AGI if Married Filing Jointly Range of EITC
Zero $15,820 $21,710 $2 to $538
One $41,756 $47,646 $9 to $3,584
Two
$47,440 $53,330 $10 to $5,920
Three or More $50,954 $56,844 $11 to $6,660

 

Note: The amounts for 2020 still apply if you use your 2019 earned income.

Claiming the Earned Income Credit is easy with 1040.com

Simply input your earned income from 2019 when prompted, and we’ll calculate your return both ways to figure which gives you the most EIC—and for one flat $25 rate! Affordable, simple taxes await, so be sure to sign up or log in today to get started.

 

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