The largest tax credit you’ve (probably) never heard of

Earned Income Tax Credit (EITC, sometimes called EIC) is the largest tax credit many Nebraskans earn, yet only about 80% of eligible taxpayers receive the credit.

Legal Aid of Nebraska is working hard to ensure that all eligible Nebraskans receive the tax credit they have earned — but a large part of this involves ensuring that eligible taxpayers file their tax returns, even when they are not required to do so.

EITC is a credit designed to help working families who are low and middle-income. The amount of credit earned is based on the family size and the amount of “earned income,” (generally W-2 wages) that the taxpayer makes each year.

“Earned Income Tax Credit is the largest tax credit many Nebraskans earn, yet only about 80% of eligible tax payers receive the credit.”

Shailana Dunn Wall wears a purple jacket and a white and brown polka dot shirt and smiels with her arms crossed.

Shailana Dunn-Wall is the Christine A. Brunswick Public Service Fellow and Fellowship Staff Attorney at Legal Aid of Nebraska.

The credit is generally larger for taxpayers with more qualifying dependent children, since they are supporting larger families. The credit works by multiplying the taxpayer’s earned income by a percentage (based on family size) which determines the size of the credit. For eligible Nebraskans, the average EITC amount was $2,364 in 2020. That’s a lot of money back into the pockets of hardworking Nebraska families.

A taxpayer is eligible for EITC if they are:

• at least 25 years old and less than 65 years old
• are not claimed as another taxpayer’s dependent
• have earned income (wages)
• are a resident of the United States for at least half the year
• are not filing taxes as “Married Filing Separately”
• do not have more than $3,650 of investment income (for 2020)

If a taxpayer meets the requirements listed above, then they are eligible for EITC if their income does not exceed the amounts in the table below:

Number of qualifying children Income Limit Income Limit for Married Filing Jointly
3 or more  $50,954 $56,844
2 $47,440 $53,330
1 $41,576 $47,646
None $15,820 $21,710

Providing essential financial help for those hit hardest by COVID-19

Due to the pandemic, many Nebraskans had lower income in 2020 than in 2019. In recognition of this, if a taxpayer qualifies for EITC in 2020, they may elect to have the amount of their EITC based on their 2019 income if it would result in a larger tax credit. This will also help many of the Nebraskans who have been hardest hit by the pandemic.

“For eligible Nebraskans, the average EITC amount was $2,364 in 2020. That’s a lot of money back into the pockets of hardworking Nebraska families.”

There are special qualification rules for EITC that increase eligibility for members of the military, clergy and taxpayers with disabilities.  If you or a member of your family falls into one or more of these categories, you can use the IRS’ EITC Assistant to help determine if you are eligible for EITC: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant

 

What you need to do to claim the Earned Income Tax Credit for 2020

Prepare and file your federal income tax return (federal and state income tax returns should be filed or postmarked no later than May 17, 2021). You must meet the income limit and other eligibility criteria (listed above).

For your 2020 tax return only, you can use either your 2019 or 2020 income for the EITC, make sure you use the income for the year that will result in the larger EITC.

Since all Americans are currently under a state of emergency due to the COVID-19 pandemic, eligible families are able to use either their 2020 income or their income from the previous year (2019) to determine the amount of EITC they receive.

If you qualify for the EITC you will receive a refund (cash). If you provide bank account information on your tax return, the refund will be directly deposited into your bank account. Otherwise, you will receive a refund check from the IRS.

Need additional help? Resources to help file taxes

If you think you might qualify for EITC but need help filing your taxes, there are free resources that can help.

Shailana Dunn-Wall (she/her/hers), Christine A. Brunswick Public Service Fellow and Fellowship Staff Attorney at Legal Aid of Nebraska, is the author of this article. Jennifer Gaughan also contributed to this article..

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