The earned income tax credit directly reduces the amount of income tax owed by lower-income working taxpayers. Depending on a tax filer’s number of children, tax filing status, and income, the tax credit can be in the thousands.
Here’s what you need to know about the 2022 EITC tax refund schedule and the 2023 EITC numbers.
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What Is the Earned Income Tax Credit (EITC)?
The earned income tax credit, also known as the earned income credit (EIC), is a credit that low- to moderate-income workers can claim on their tax returns to reduce federal income tax owed.
Singles or married couples must have some form of earned income to qualify. Above a certain income level, they aren’t eligible for the credit. The number of qualifying children is also a key component of the tax credit.
The credit ranges from $560 to $6,935 for the 2022 tax year (taxpayers filing by April 18, 2023) and from $600 to $7,430 for 2023.
For those filing federal returns in 2023, the maximum allowable adjusted gross income (AGI) is $59,187 for a married couple filing jointly who have three or more children. Tables with amounts for the tax credit and maximum AGI are in the next section.
At the very least, the EITC reduces the amount of tax owed. At best, low-income people who have little or no income tax liability can receive the total credit in the form of a tax refund.
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How Does the Earned Income Tax Credit Work?
The EITC is a fairly complicated credit, even for taxpayers who are not filing taxes for the first time. In fact, the IRS sees errors in close to 25% of tax returns claiming it. Online tax filing software can help. The IRS also offers an “EITC Assistant” calculator.
The amount of the credit depends on the tax filer’s number of qualifying children, filing status, and earned income or AGI. (AGI is defined as gross income — including wages, dividends, capital gains, business income, and retirement distributions — minus adjustments to income, which can be student loan interest, contributions to a retirement account, educator expenses, or alimony payments.)
Investment income must be $10,300 or less in 2022 ($11,000 or less in 2023).
On your tax form, the credit is filed under the “payments” section, which is a way for the credit to be directly applied dollar for dollar to any income tax you owe.
Workers receive the credit beginning with their first dollar of earned income. The amount of the credit rises with earned income until it reaches a maximum level. Then it begins to phase out at higher income levels.
Taxpayers with earned income or AGI above a certain level won’t qualify for the tax credit at all. These amounts are listed below for tax years 2022 and 2023.
Phaseout amount begins at:
• Single, head of household, or widowed: $9,160 for no children; $20,130 with qualifying children.
• Married filing jointly: $15,290 for no children; $26,260 with qualifying children.
Phaseout amount begins at:
• Single, head of household, or widowed: $9,800 for no children; $21,560 with qualifying children.
• Married filing jointly: $16,370 for no children; $28,120 with qualifying children.
Who Qualifies for the EITC?
To qualify for the EITC, you must have earned income and meet certain AGI requirements.
Types of income include:
• W-2 wages from employment
• Self-employment (or gig or freelance) earnings
• Certain disability benefits
• Benefits from a union strike
• Nontaxable combat pay
You do not have to include income from the following sources:
• Social Security
• Child support or alimony
• Unemployment benefits
• Pensions or annuities
• Interest and dividends
• Pay as a prison inmate
What Are ‘Qualifying Children’?
To claim a child for the EITC, a qualifying child must have a valid Social Security number, meet the four tests of a qualifying child, and cannot be claimed by more than one person.
The four tests for a qualifying child are:
• Age: A qualifying child can be of any age if they are permanently and totally disabled; under age 19 at the end of the year and younger than you; or under age 24 at the end of the year and a full-time student for at least five months of the year and younger than you.
• Relationship: A qualifying child can be a son, daughter, stepchild, adopted child, foster child, brother, sister, half brother, half sister, stepsister, stepbrother, grandchild, niece, or nephew.
• Residency: The child lived with you in your home for more than half the year.
• Joint return: The child is not filing a joint return with anyone, such as a spouse, to claim any tax credits like the EITC.
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Can You Claim the EITC If You Have No Children?
It is possible to claim the EITC if you have no children, but the income threshold is very low and the credit is small.
For tax year 2022, the maximum credit is $560 for filers without children. The maximum adjusted gross income is $16,480 for taxpayers filing as single, head of household, or widowed and $22,610 for married couples filing jointly.
For tax year 2023, the maximum credit is $600. The income figures are in the table above.
Requirements include:
• A valid Social Security number
• Not filing Form 2555 (foreign earned income)
• Main home is in the U.S. for more than half the year
• Not claimed as a dependent or qualifying child on another tax return
• You are at least 19 (or 24 if you were at least a part-time student for at least five months of the year, or at least 18 if you are a former foster child after turning 14 or a homeless youth)
There are also special qualifying rules for clergy, members of the military, and taxpayers and their relatives who receive disability payments.
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How the EITC Can Affect When You Receive Your Refund
Your tax refund may be delayed if you claim the EITC and file early in the year. The IRS is required to wait until mid-February to issue refunds when the EITC is claimed.
Expect a tax refund by March 1, assuming there were no issues with your tax return and you opted for direct deposit, the IRS says.
Common Errors to Avoid When Claiming the EITC
The IRS lists five snags to avoid when claiming the earned income credit.
1. Your child doesn’t qualify: The IRS states that most errors occur because the child doesn’t meet the four requirements relating to relationship, residency, age, and filing status.
2. More than one person claimed the child: Only one person can claim the qualifying child. If the child counts as a qualifying child for more than one person (such as separated or divorced parents), the IRS has some guidelines on how to choose which person can claim the qualifying child.
3. Social Security number or last name doesn’t match card: The Social Security number and name must be exactly how they appear on the Social Security card.
4. Married and filed as single or head of household: Taxpayers cannot claim the EITC if they are married and file as single or head of household.
5. Over- or underreported income or expenses: Be sure to include all types of income from IRS Forms W-2, W-2G, 1099-MISC, 1099-NEC, and other income unless it’s one of the exceptions listed above.
The Takeaway
The EITC offers income tax relief for lower-income workers. If you think you might qualify, look at the EITC tax refund schedules, seek tax help if you need to, and file electronically for a speedier refund.
While filing taxes isn’t most people’s idea of fun, a free money tracker app can make keeping your financial house in order much easier.
FAQ
When should I expect my EITC refund?
According to the IRS, a refund with an EITC will arrive around March 1 if you filed electronically and elected for direct deposit, and there were no issues with your return. By law, the IRS cannot issue a tax refund with an EITC before mid-February.
Most taxpayers of all stripes who file electronically should get a refund within 21 days, the IRS said in January 2023.
Will there be an EITC in 2023?
Yes, there is an EITC for 2023. It rises to a maximum of $7,430 for the 2023 tax year.
Will tax refunds be bigger in 2023?
No, not in general. Many taxpayers could see significantly smaller refunds in 2023, the IRS says, thanks to the expiration of expanded tax credits that served as pandemic relief. For the EITC, a taxpayer with no children who received an earned income credit of $1,502 in 2021 will receive a credit of $560 for tax year 2022 ($600 for 2023).
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Top tax pros reveal their top tax tips
It’s safe to say that millions of Americans are breathing a sigh of relief now that the IRS has pushed back the deadline to file your 2020 taxes from April 15 to May 17.
But you might not want to celebrate just yet, as there is a major downside to the extension. Fraudsters who attempt to take advantage of Americans on Tax Day now have even more time to try to separate you from your hard-earned income.
To help ensure you don’t fall into any financial traps this tax season, we asked some industry experts to weigh in on ways to stay safe when filing your tax return. From spotting scams to concerns over stimulus repayments, these tips can help you avoid any unnecessary headache on Tax Day.
DepositPhotos.com
Phishing, check and phone scams are not new. But what is new is how fraudsters are applying these scams creatively to our times. For instance, it’s known that fraudsters typically send fake tax refund checks. They follow this by a written notice claiming that they sent you a higher amount than intended and that you’ll need to send them a portion of the money back. But what we’re seeing now is that they’re sending these as a form of fake stimulus checks.
The best way to detect a tax scam is by remembering that the IRS will not contact you by phone, text or social media. If you receive a written notice in the mail, verify that it’s actually coming from the IRS. Letters impersonating the IRS will often contain fake contact numbers, so don’t contact the numbers on the letter. Instead, visit the IRS website and contact them that way.
One of the best ways to stay ahead of fraudsters is to file your taxes early. You’ll not only avoid potential tax-related identity theft but also long lines at the tax accountant’s office. Filing early is especially important if you know you’ve already fallen victim to identity theft.
Many Americans are worried about having to pay back the money they’ve received from stimulus checks once they file taxes. However, this isn’t true. You’ll need to report the money you received, but the IRS states that “there is no provision in the law requiring repayment.
-Alexa Serrano, CAMS, Banking Editor at Finder.com
DepositPhotos.com
In 2020, scams intensified due to coronavirus tax relief. According to the most recent IRS “Dirty Dozen” list, an annual list of the most popular tax scams, some of the most notable include:
- Phishing – A scammer sends emails, letters, or text messages and impersonates the IRS with the goal to steal taxpayer personal information. They may also create dummy IRS websites with the same goal.
- Threatening Phone Calls – A scammer calls claiming to be with the IRS and threatens arrest or deportation if the victim doesn’t pay a fake tax bill.
- Refund Theft – This is a form of identity theft. A scammer files false tax returns under a victim’s name or diverts refunds to wrong addresses and bank accounts.
- Unscrupulous Return Preparers – These scammers will refuse to sign the return (ghost preparers), ask the taxpayer to sign a blank return, or promise a large refund before looking at taxpayer records.
There are so many factors that can lower or zero out a tax refund. It depends on your tax situation. Contrary to popular opinion, it’s not ideal to have a large tax refund.
When you withhold too much in taxes, you’re giving the IRS an interest free loan, which means less money in your pocket throughout the year. Ideally, your goal should be to get as close to zero taxes owed or paid as possible.
-Melanie Bledsoe, CPA at Bledsoe Consulting Services
DepositPhotos.com
File your taxes electronically if possible and have your refund directly deposited instead of taking a paper check. If you owe taxes, pay your taxes on the IRS Direct Paysite so that you can keep a record of them having your payment on time.
Also, if you are hiring a tax professional, make sure that they are using an encrypted/secure portal to transmit your tax documents as these documents should not be freely exchanged over email since the tax documents contain sensitive and private information.
The stimulus checks will have some impact. If you did not get a stimulus check, but your income falls under the threshold ($75K and under if you’re single, $150K and under if you’re married), you can still receive those stimulus payments as credits, which is refundable.
The credit can be used to increase your refund or reduce your tax liability. If you already received the stimulus payment, you will not be taxed on your tax return at all; however, you have to report the amounts received.
-Eric Pierre, CPA, Chief Executive Officer, Owner, and Principal at Pierre
Depositphotos
These tax preparers will end up getting more money from you if you allow them. Ensure that the tax preparer you’re in contact with has an IRS Preparer Tax Identification Number or PTIN. Do your due diligence by asking for their qualifications or credentials before transacting with any tax preparer. Lastly, do not sign a blank return or give any information if you aren’t entirely sure of who you’re dealing with.
-Paul Sundin,CPA and tax strategist at Emparion
The IRS will always mail you a bill if you actually owe taxes. You will also have an opportunity to defend yourself and appeal the amount you owe. Anyone who contacts with a demand for immediate payment via debit card, gift card, or wire payment is a fraudster.
A smaller refund can occur when you have income that is not subject to withholding such as self-employment income, interest, dividends and capital gains. It can also occur if you have reduced your withholding by making adjustments to your W-4.
-Eric Bronnenkant, CPA, CFP and Head of Tax at Betterment
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If you already received both stimulus checks, then your tax return shouldn’t be affected. However, if you had some substantial changes in 2020 (reduced income, having a baby, etc.) then consider filing as soon as possible to receive the highest amount you can when they send the third stimulus check.
I recommend using your tax refund to pay off debt, boost your savings or invest in your future. Depending on the amount you receive, you can use that money to really free up your finances so you’re in a better place in the months to come. 2020 was a difficult year for most people, so this is a great opportunity to pay off high interest debts or replenish your emergency fund.
– Jacob Dayan, CEO and Co-founder of Community Tax and Finance Pal
Kameleon007/istockphoto
Since the IRS communicates through the mail, it can be difficult to discern what is and isn’t a scam. Fortunately, few hackers have the skills to successfully imitate the IRS. If you’re issued a letter, it’s a good idea to review how the sender requests payment.
The IRS only accepts online payment through their official website and their electronic federal tax payment system. If the sender requests money through another site, it’s a giant red flag.
-Kristen Bolig, Founder at SecurityNerd
This article
originally appeared on Finder.comand was
syndicated by MediaFeed.org.
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