What Is Earned Income Tax Credit

Ct Earned Income Tax Credit

What is the Earned Income Tax Credit and Do You Qualify For It?

Other EITC Assistance

What is the CT EITC?

The Connecticut Earned Income Tax Credit is a refundable state income tax credit for low to moderate income working individuals and families. The state credit mirrors the federal Earned Income Tax Credit.

The U.S. Congress originally approved the federal tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. The Connecticut General Assembly approved the CT EITC during the 2011 legislative session.

When both the federal and CT EITC amounts exceed the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

To qualify for the CT EITC, you must be eligible for the federal EITC. You must have earned income from employment, self-employment or another source and meet certain rules. In addition, you must either meet the additional rules for Filers Without a Qualifying Child or have a child that meets all the Qualifying Child Rules.

Do I qualify?

To qualify for the Connecticut Earned Income Tax Credit or EITC, you must have earned income from employment, self-employment or another source and meet the rules listed below.

You, and all qualifying children must have a valid Social Security Number prior to the due date of the return.

You must have earned income from employment, self-employment, or another source of earned income.

Be a full-year resident of the State of Connecticut.

Cannot be the qualifying child of another person*

Taxpayers Without A Qualifying Child

Taxpayers without a qualifying child must use the DC Earned Income Tax Credit Worksheet for Filers Without a Qualifying Child on page 12 to determine the DC EITC. You may need information from the federal instruction booklet concerning the Earned Income Credit to determine your eligibility for the DC Earned Income Tax Credit. If you do not have a qualifying child for the EITC and did not qualify for the federal credit due to your income, you may still qualify for the DC EITC.

You May Qualify For The Caleitc If:

Youre at least 18 years old or have a qualifying child
You have earned income of $30,000 or less

Parents may qualify for other credits, too, such as the federal Child Tax Credit .
ITIN holders only qualify for the CalEITC and the California Young Child Tax Credit.
ITIN parents can claim the federal Child Tax Credit for citizen children.

Is The Earned Income Tax Credit Worth It

The IRS reports that roughly 20% of eligible taxpayers don’t claim the EITC. But if you qualify, it’s worth pursuing. Whether it merely reduces your tax bill or secures you a refund, the EITC represents hundreds or thousands of dollars in available relief.

Are you confused about whether or not you’re eligible? Many online tax programs include EITC calculations to help you puzzle this out. The IRS also offers an online EITC Assistant and live volunteer help through its Volunteer Income Tax Assistance or Tax Counseling for the Elderly sites.

The Earned Income Tax Credit Raises Employment

“This largest federal cash transfer program also successfully meets its explicit goal of encouraging low-income parents to go to work by, in effect, lowering their tax rate and providing a financial bonus for that work effort.”

The Earned Income Tax Credit , a federal program that provided 22 million American families with children a total of $34 billion in cash assistance in 2003, accomplishes its stated goals. It not only provides low-income workers, including many who are poor, with extra income through tax refunds. This largest federal cash transfer program also successfully meets its explicit goal of encouraging low-income parents to go to work by, in effect, lowering their tax rate and providing a financial bonus for that work effort. It has been especially effective in encouraging single parents, particularly women, to obtain employment.

In Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply , NBER researchers Nada Eissa and Hilary Hoynes review a large number of economic studies of the EITC and conclude that the main lesson from the accumulated evidence is that real responses to taxes are important. The second lesson is that, while the EITC stimulates people to join the work force, there is no evidence that it prompts them to work fewer hours. This difference, the authors write, “has several important implications for the design of tax-transfer programs and the welfare evaluation of taxation.”

— David R. Francis

Read Also: Out Of State Sales Tax

Earned Income Tax Credit Changes For 2021 And Beyond

Law changes in 2021 aim to expand the availability of the earned income tax credit.5 As mentioned above, the amount of investment income someone can receive and still be eligible for the EITC has increased from $3,650 to $10,000. Married but separated spouses who do not file a joint return may also now qualify for the EITC, as long as a few key stipulations are met. Specifically, they must live with their qualifying child for more than half the year and either:

Do not live in the same dwelling as the other spouse for at least the last six months of the tax year for which the EITC is being claimed, or
Are legally separated according to their state law and do not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed.

In the past, you could not claim the EITC if your filing status was married filing separately.

Taxpayers Have Option To Use Prior Year Earned Income

In 2020, millions of Americans lost their jobs, were furloughed or worked fewer hours due to the Covid-19 pandemic outbreak. According to the National Conference of State Legislatures, unemployment rates increased in 2020 to 14.7% for April, compared to the previous year, where unemployment was only 3.6%. Because of the surge in unemployment rates, Congress passed the Taxpayer Certainty and Disaster Tax Relief Act of 2020. This Act allowed taxpayers to report prior earnings to claim a higher tax credit.

For the 2021 tax year, taxpayers can use their 2019 or 2021 earned income. You should choose whichever year yields the highest tax credit.

Recommended Reading: Where S My Tax Refund

Requirements For Qualifying Children

The rules for qualifying children for the EITC are slightly different from those for claiming dependents, in general. The rules for qualifying children for EITC purposes are based on four tests:

Relationship:The child must be related to you by blood, marriage, or adoption, or must live with you under a foster arrangement. The child can be your son, daughter, stepchild, grandchild, niece, nephew, brother, sister, half brother, half sister, stepbrother, stepsister, or an eligible foster child. Adopted children are treated the same as children by birth, and foster children must be placed in your care by an authorized placement agency.
Age: The child must be under age 19 at the end of the tax year, or a full-time student for at least five months of the year and under age 24. You must be older than your dependent in these situations. However, age doesn’t matter if your dependent is permanently disabled.
Residency: The child must live with you in the United States for more than half of the year .
Joint Return: A child you claim as a dependent for purposes of claiming the EITC cannot claim any credits, including the EITC in a joint return they file with their spouse. They can file a joint return solely to claim a refund on taxes they have withheld from their paycheck.

Qualifying Widow Or Widower

The Earned Income Tax Credit (EITC) in 3 minutes

To file as a qualifying widow or widower, all the following must apply to you:

You could have filed a joint return with your spouse for the tax year they died. It does not matter if you filed a joint return.
Your spouse died less than 2 years before the tax year youre claiming the EITC and you did not remarry before the end of that year
You paid more than half the cost of for the year
You have a child or stepchild you can claim as a relative. This does not include a foster child.
This child lived in your home all year, except for temporary absences. Note: There are exceptions for a child who was born or died during the year and for a kidnapped child. For more information, see Qualifying Child Rules, Residency.

Publication 519, U.S. Tax Guide for Aliens

How To Claim The Earned Income Tax Credit

To claim the EITC, U.S. workers have to file a tax return even if it isnt normally required. That so-called standard deduction income limitfor 2021 is $12,550 for single filers and married filing separately, $18,800 for heads of households and $25,100 for married couples filing jointly.

U.S. taxpayers claiming the credit also have some discretion over the filing status that they choose. Married but separated filers can claim the credit without filing a joint return with their spouse if they have a qualifying child and do not live with their spouse for at least half of the year. They also have to be considered legally separated in the state where they live.

New for 2021, U.S. workers who have children without social security numbers can now qualify for the childless worker credit. Previously, those taxpayers didnt qualify for the credit.

If youre unsure of whether you qualify, utilize the IRS qualification assistant tool.

Taxpayers who receive the credit wont be able to get their refund until at least mid-February of any given tax year, according to the IRS. By law, the agency cannot disburse those funds any sooner as well as other family tax credits, such as the child tax credit to prevent fraud and errors.

After that, if you file your taxes electronically and provide the IRS your direct deposit information, you can expect your refund within 21 days.

Tax Credit For Case Of One Qualifying Child

With one child and parent filing singly or as head of household, as of 2020:

Tax credit equals $0.34 for each dollar of earned income for income up to $10,540.
For income between $10,540 and $19,330, the tax credit is a constant “plateau” at $3,584.
For income between $19,330 and $41,765, the tax credit decreases by $0.1598 for each dollar earned over $19,330.
For income over $41,765, the tax credit is zero.

This is represented by the lightest blue, solid line:

Also Check: Can I Still File My 2017 Taxes Electronically In 2021

How Does The Earned Income Tax Credit Work

Here are some quick facts about the earned income tax credit:

For the 2022 tax year , the earned income credit ranges from $560 to $6,935 depending on your filing status and how many children you have.
You don’t have to have a child in order to claim the earned income credit.
The earned income tax credit doesn’t just cut the amount of tax you owe the EITC could also score you a refund, and in some cases, a refund that’s more than what you actually paid in taxes.
If you claim the EITC, the IRS cannot issue your refund until mid-February by law.

$63,398

Facts About The Earned Income Tax Credit

New Mexicoâs Working Families Tax Credit and the Federal Earned Income ...

OVERVIEW

Many qualified taxpayers overlook the Earned Income Tax Credit , potentially missing out on thousands of dollars at tax time. Here are 5 facts every taxpayer should know about the EITC.

For information on the third coronavirus relief package, please visit our American Rescue Plan: What Does it Mean for You and a Third Stimulus Check blog post.

Encouraging And Rewarding Work

The EITC is designed to reward work. As noted, a workers EITC grows with each additional dollar of earnings until reaching the maximum value. This creates an incentive for people to join the labor force and for low-wage workers to increase their work hours.

This incentive feature has made the EITC highly successful. Studies show that the EITC encourages large numbers of single parents to join the labor force, especially when the labor market is strong.

Specifically, a highly regarded study found that EITC expansions are the most important reason why employment rose among single mothers with children during the 1990s the EITC was more effective in encouraging work than either the strong economy or the 1996 law that weakened core basic needs programs.

This Valuable Tax Credit Can Be A Lifeline For Lower Earners Find Out If You Qualify

Taxes are a huge burden for Americans of all income levels, but they can be even more problematic for lower earners who need every dollar they can get their hands on. Thankfully, the IRS has made one extremely lucrative tax credit available to low-income households. It’s called the Earned Income Tax Credit, or EITC, and it could put serious cash back in your pocket.

Also Check: If You File Taxes Late What Happens

Valid Social Security Number

To qualify for the EITC, everyone you claim on your taxes must have a valid Social Security number . To be valid, the SSN must be:

Valid for employment
Issued before the due date of the tax return you plan to claim

For the EITC, we accept a Social Security number on a Social Security card that has the words, “Valid for work with DHS authorization,” on it.

For the EITC, we dont accept:

Individual taxpayer identification numbers
Adoption taxpayer identification numbers
Social Security numbers on Social Security cards that have the words, “Not Valid for Employment,” on them

For more information about the Social Security number rules for the EITC, see Rule 2 in Publication 596, Earned Income Credit.

Are There Other Tax Credits Available

Earned Income Tax CreditâGet it Right

Many other tax credits are available to both individuals and families. In particular, taxpayers who qualify for the EITC may want to consider the child tax credit and the additional child tax credit . Both of these credits target families with similar income and qualifying characteristics. In 2020, the ACTC is refundable, meaning that if you qualify and your credits exceed your tax bill, you can receive the difference as a refund.

Also, be aware of new tax changes for the 2021 tax year. The American Rescue Plan Act, passed in March of this year, may make it easier for single taxpayers to qualify for the EITCand may offer them more relief. Look for additional changes to EITC rules, along with enhancements to the child tax credit and more for 2021.

Claiming the EITC may require a bit of effort, but much of the work is math you’re already doing to file your taxes. Receiving this tax credit may help you and your family weather a difficult financial year, and that’s welcome news after the many challenges of 2020.

What Is Capital Gains Tax?

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Using 2019 Income Levels For 2020 And 2021 Eitc Eligibility

Note that for 2020 tax filings in 2021, Congress passed legislation in multiple COVID relief bills that allows you to use 2019 income levels to apply for the EITC in your 2020 return and 2021 return.

This is to address the pandemic driven economic slowdown and job or income losses for taxpayers who may not have qualified for the EITC if their 2020 or 2021 income was used to figure their EITC. Tax software providers like TurboTax have updated their software to account for this change.

Earned Income Tax Credit Relief : If your earned income was higher in 2019 than in 2020 or 2021, you can use the 2019 amount to figure your EITC for 2020 and 2021. This temporary relief would allow tax payers to qualify or get a potentially larger refund in their 2020 and 2021 tax filings.

Us Citizen Or Resident Alien

To claim the EITC, you and your spouse must be U.S. citizens or resident aliens.

If you or your spouse were a nonresident alien for any part of the tax year, you can only claim the EITC if your filing status is married filing jointly and you or your spouse is a:

U.S. Citizen with a valid Social Security number or
Resident alien who was in the U.S. at least 6 months of the year youre filing for and has a valid Social Security number

Earned Income Credit Policy

In general, all tax credits for individuals represent the governments attempt to encourage certain behaviors in Americans, to achieve specific goals. The earned income tax credit is designed to reward people who enter and stay in the workforce, with the aim of both improving their familys standard of living and contributing to the nations economic growth. Some congressmembers are looking to expand the population that qualifies. For example, the Build Back Better Act aims to permanently allow childless workers to receive the greater EITC benefits temporarily established by the American Rescue Plan.10 If passed, it could benefit around 17 million low-wage, childless workers.

Details of the earned income tax credit change from year to year, but the credit itself has demonstrated staying power. The federal credit has been in place since 1975, and Rhode Island was the first state to enact an earned income tax credit, in 1986.11

The Takeaway

Earned income tax credits can range from a few hundred dollars to more than $6,500, and aim to help working families get tax breaks or refunds. Your eligibility depends on your income level, marital status, and number of children. Even if your earnings are so low that you pay little or no income taxes, you might be entitled to this credit making it akin to a grant. Online tools and free tax preparation advice are available to help you figure it out.