Submitting season kicked off on January 24 this yr. Every submitting season comes with challenges for taxpayers similar to selecting a certified return preparer, finding a Volunteer Revenue Tax Help (VITA) website, and understanding the problems to handle on their tax returns. The Earned Revenue Tax Credit score (EITC) Consciousness Day is a one-day nationwide schooling program to alert taxpayers to the significance of the EITC and train them declare it correctly.
The EITC’s significance reveals in its numbers: In fiscal yr (FY) 2020, over 26 million taxpayers acquired the EITC, and the typical EITC quantity was practically $2,500. In FYs 2018 and 2019, an identical variety of taxpayers acquired the EITC, and that common quantity was additionally practically $2,500 in each years. It’s definitely a useful credit score for taxpayers, and one which requires cautious consideration to its particulars.
New 12 months, New Legislation
The American Rescue Plan Act (ARPA) enacted a few modifications to the EITC. Some are everlasting whereas some are non permanent, presently making use of solely to tax yr (TY) 2021 returns.
Let’s begin with among the EITC’s non permanent modifications, making use of solely to TY 2021 tax returns:
- Certified former foster youth and certified homeless youth who’re 18 years outdated and with out qualifying kids could declare the EITC. These particularly susceptible taxpayers could also be eligible for an EITC refund of $1,502, as long as they meet the EITC’s guidelines. These guidelines are mentioned on web page 42 of the Kind 1040 (and 1040-SR) Directions. We summarize them right here:
- Certified former foster youth are people who, between the ages of 14 and 17, had been in foster care and who present consent for the entity or entities who administered the foster care program to reveal data associated to their standing as a former foster youth. Certified homeless youth are people who certify that they’re an unaccompanied youth who’s homeless or who’s susceptible to homelessness, and who’s self-supporting.
- Certified former foster youth and certified homeless youth who meet these definitions and meet all different necessities to assert the EITC should verify the field on Line 27 of the Kind 1040. The textual content accompanying that verify field reads as follows: “Test right here when you had been born after January 1, 1998, and earlier than January 2, 2004, and also you fulfill all the opposite necessities for taxpayers who’re at the very least age 18, to assert the EIC. See directions.”
- A broader age vary of taxpayers who don’t declare qualifying kids will be capable of declare EITC. Beforehand restricted to taxpayers age 25 to these youthful than 65, there’s now no higher age restrict on claiming this credit score. Taxpayers as younger as 19, if not a specified pupil, could now declare the EITC. Taxpayers who’re college students that carry at the very least half the conventional full-time workload for ultimately 5 months of the yr are specified college students and can’t declare the EITC with out qualifying kids till the taxpayer turns 24 years outdated. And, as famous earlier, homeless and former foster youth who’re as younger as 18 are eligible to assert the EITC.
- Selection of yr revenue. Taxpayers will be capable of elect to make use of their TY 2019 revenue as a substitute of their 2021 revenue, if their TY 2021 revenue is decrease than their 2019 revenue. Reflecting COVID-19’s change to employment and incomes, this transformation could allow sure taxpayers to assert the next EITC quantity than in the event that they relied on their TY 2021 revenue.
- The revenue plateau and credit score quantities for taxpayers with out qualifying kids expanded considerably. For TY 2021, the EITC for these taxpayers’ plateaus at $1,502 for married taxpayers submitting collectively and incomes between $9,800 and $17,559, and on the similar credit score quantity for taxpayers with different submitting statuses incomes between $9,800 and $11,649.
- For taxpayers claiming qualifying kids on their TY 2021 return, the EITC plateaus at $6,728 for a taxpayer with three qualifying kids who isn’t submitting a joint return and who’s incomes between $14,950 and $19,549, and on the similar quantity for married taxpayers submitting collectively with three qualifying kids and incomes between $14,950 and $25,549.
Let’s proceed with among the everlasting modifications to the EITC:
- An extra class of taxpayers who’re married however separated from their spouses could also be newly eligible for the EITC. Typically, taxpayers’ submitting standing have to be single, married submitting collectively, or head of family to assert the EITC with qualifying kids – married taxpayers submitting separate returns weren’t allowed to assert the credit score. Now, sure married taxpayers submitting individually could possibly declare EITC as long as they:
- Didn’t dwell with their partner over the past six months of the yr, or have a separation settlement or decree; and
- Lived with their qualifying baby or kids for greater than one-half of the yr.
- The utmost quantity of funding revenue (like curiosity and dividends) {that a} taxpayer could have with out being ineligible for the EITC was elevated from 2020’s cap of $3,650 to $10,000.
- Taxpayers whose qualifying kids don’t meet the social safety quantity requirement could possibly declare the EITC as in the event that they had been a taxpayer with out qualifying kids.
Problems, Issues, and Assist
The EITC guidelines are sophisticated, and EITC audits might be time consuming. In FY 2020, the IRS carried out practically 158,000 EITC audits. Of those, 16.3 % had been closed as “no change”, 23.5 % closed as “taxpayer default”, 34.8 % had been closed as “with no response from the taxpayers”, and solely 464 petitioned the U.S. Tax Courtroom. The IRS closed practically 100,000 extra EITC audits in pre-pandemic FY 2019. That yr, the IRS carried out nearly 257,000 EITC audits. Of those, 13 % closed “unchanged”, 26.8 % closed as “taxpayer default”, and 939 taxpayers petitioned the U.S. Tax Courtroom.
The IRS has posted data and developed instruments to help taxpayers present process an audit to be able to facilitate correct audit responses. These net instruments are useful, particularly as a result of the IRS is gradual to reply to taxpayer calls. As I talk about in my 2021 Annual Report back to Congress, the IRS’s phone service is woefully insufficient, hovering at a degree of service of 21 % throughout its telephone strains in FY 2021. In that fiscal yr, the IRS acquired about 282 million phone calls. Customer support representatives answered solely about 32 million, or 11 %, of these calls. These corresponding with the IRS about an EITC audit may really feel pissed off.
As I additionally talk about in my 2021 Annual Report back to Congress, the IRS had roughly 4.75 million items of taxpayer correspondence in its backlogged stock in mid-December 2021.
Assist is out there to eligible taxpayers:
Be taught extra from an EITC Consciousness Day occasion close to you. TAS will likely be internet hosting or taking part in EITC Consciousness Day and different pre-filing season occasions to make sure taxpayers perceive the EITC and might correctly declare it. IRS.gov incorporates many instruments and assets to help taxpayers with EITC qualification and advantages.
Bear in mind to keep away from processing delays:
- Make each effort to file your return electronically;
- Present your financial institution routing data;
- Request direct deposit on your refund; and
- Triple verify entries in your return for errors.
Errors or inconsistencies with IRS information will trigger delays in processing.
