A Look Back at Previous Years Could Increase Your Tax Break
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Who likes good news about taxes? Everyone! Here’s some good news — you can use your prior year’s income to claim this year’s EITC!
Use Your 2019 Earned Income to Get a Boost
Earned Income Tax Credit (EITC) gives low to moderate-income workers and families a tax break. If you qualify for EITC, the government will send you a check for the amount of your EITC — even if you don’t owe taxes. Your income must be below certain limits and meet other requirements to qualify for this credit. When applying for EITC, you can use your income from 2019 to claim a higher EITC (deadline is July 15, 2023)
Fast fact: Approximately 20% of people eligible for EITC don’t claim it.
The “lookback” rule is an opportunity for taxpayers to get the biggest credit possible by allowing them to use their 2019 earned income instead of their 2021 earned income to calculate their EIC or Additional Child Tax Credit (ACTC) on their 2021 tax return. So, if your income was reduced in 2021 due to unemployment, salary cuts, etc., using your 2019 earned income may help you get a larger credit.
3 Ways You Can Use EITC to Add More Money to Your Paycheck
- If you have a job, set aside part of your earned income tax credit in a special account called an HSA (health savings account) to pay for medical expenses without paying taxes on that money.
- If you’re self-employed, you can choose how much of your EITC should be available as a tax refund after filing taxes. It can help reduce how much money is withheld from your paychecks throughout the year.
- Use some or all of your EITC to pay down credit card balances, car payments, or student loans.
Who Qualifies for EITC?
Basic qualifications for EITC for tax year 2021 include:
- Have worked and earned income under $60,000
- Have investment income below $10,000 in the tax year 2021
- Have a valid Social Security number by the due date of your 2021 return (including extensions)
- Be a U.S. citizen or a resident alien all year
- Not file Form 2555 (related to foreign earned income)
For full eligibility requirements, check out the EITC Qualification Assistant.
If you are eligible, you must file a prior year tax return and complete and file Form 1040 (along with a Schedule EITC if you had any qualifying children). If you filed a tax return for prior years but didn’t claim EITC and were eligible, you must file an amended return.
CWF Can Help You Claim Your EITC
Campaign for Working Families (CWF) can ensure that those who qualify get a tax break with EITC! If you’re a working family or an individual in Philadelphia, Montgomery County, or Southern New Jersey earning less than $65,000 per year, you can get free professional help at CWF. In addition, an IRS-certified CWF tax preparer will help you eliminate the stress of taxes and make sure you don’t miss out on EITC.
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