EITC rules have changed, so be careful

The Internal Revenue Service highlighted its annual Earned Income Tax Credit Awareness Day on Friday as a way to help millions of people take advantage of the tax break, but the National Taxpayer Advocate is also pointing out that some of those benefits actually expired and don't apply this year. Average tax refunds will probably be down this year as a result.

Taxpayers who earned $53,057 ($59,187 married filing jointly) or less last year can still claim the EITC, which is a refundable tax credit. However, the IRS has been doing extra fraud checks in recent years on claims for the EITC and other refundable tax credits to deter scammers, so tax returns claiming the EITC will take longer to process.

The maximum EITC for taxpayers with no dependents is $560, which is available to filers with an adjusted gross income below $16,480 in 2022 ($22,610 for married filing jointly), and can be claimed by eligible workers between the ages of 25 and 64. Married but separated spouses who do not file a joint return may qualify to claim EITC if they meet certain requirements.

Andrew Harrer/Bloomberg

The EITC is for workers whose income does not exceed the following limits in 2022:

• $53,057 ($59,187 married filing jointly) with three or more qualifying children who have valid Social Security numbers;
• $49,399 ($55,529 married filing jointly) with two qualifying children who have valid SSNs;
• $43,492 ($49,622 married filing jointly) with one qualifying child who has a valid SSN; and,
• $16,480 ($22,610 married filing jointly) with no qualifying children who have valid SSNs.

Their investment income must be $10,300 or less.

"This is an extremely important tax credit that helps millions of hard-working people every year," said IRS Acting Commissioner Doug O'Donnell in a statement Friday marking EITC Awareness Day. "But each year, many people miss out on the credit because they don't know about it or don't realize they're eligible. In particular, people who have experienced a major life change in the past year — in their job, marital status, a new child or other factors — may qualify for the first time. The IRS urges people to carefully review this important credit; we don't want people to miss out."

Last year, 31 million eligible workers and families across the country received approximately $64 billion from EITC claims, with an average amount of more than $2,000. Taxpayers and their tax preparers can use the online EITC Assistant to determine their eligibility.

Because of the extra filters to deter tax fraudsters, the IRS said it won't be able to issue a refund that includes the EITC or Additional Child Tax Credit, which is another refundable tax credit, before mid-February, due to the 2015 PATH Act law passed by Congress, which gives the IRS extra time stop fraudulent refunds from being issued.

The IRS's online Where's My Refund? tool should show an updated status by Feb. 18 for most early EITC/ACTC filers. The IRS anticipates most EITC and ACTC-related refunds to be available in taxpayer bank accounts or on debit cards by Feb. 28 if taxpayers opt for direct deposit and there are no other issues with their tax returns.

EITC changes for 2022

Taxpayers and tax professionals need to be aware that some of the EITC benefits that were available last year thanks to the American Rescue Plan Act of 2021 are not available anymore for tax year 2022.

On Thursday, National Taxpayer Advocate Erin Collins described some of those changes on her blog, saying that would probably reduce the average refund from last year. The ARPA also included some permanent changes to the EITC rules, she noted.

Among the changes to look out for:

• Age of taxpayers without qualifying children: The special rules that changed the age requirements for taxpayers without qualifying children have expired and don't apply to 2022 returns. For 2022, taxpayers without qualifying children must be at least age 25 and under 65 at the end of the year to be eligible to claim the EITC. On top of that, the provisions lowering the minimum age for qualified former foster youth and qualified homeless youth have expired and don't apply to 2022.
• Maximum credit amount declined for taxpayers without qualifying children: The maximum amount of the credit for taxpayers without qualifying children was significantly reduced to $560 for 2022 (down from a temporary expansion to $1,502 for 2021). The maximum credit amount for those with three or more qualifying children is $6,935 for 2022, a slight uptick from 2021.
• Maximum AGI amounts significantly reduced for taxpayers without qualifying children: For taxpayers without any qualifying children who file as single, head of household, or as a qualifying surviving spouse, their AGI must be less than $16,480 (down from a temporary expansion to $21,430 for 2021). For taxpayers without any qualifying children and with married filing jointly filing status, their AGI amount must now be less than $22,610 (down from a temporary expansion to $27,380 for 2021).
• Maximum amount of investment income: The max amount of investment income allowable to still qualify for the credit slightly increases for 2022 to $10,300.
• No election to choose prior-year earned income: Unlike the past few years, taxpayers can't elect to use a prior year's earned income amount to compute the amount of the credit.
• Married filers not filing jointly: Thanks to a permanent tax relief provision in ARPA, taxpayers who are married but separated from their spouses may be eligible for the EITC without having to file a joint tax return with their spouse. ARPA expanded the rules by allowing certain married taxpayers filing separately to claim EITC only if they didn't live with their spouse during the last six months of the year, or if they have a separation agreement or decree; and lived with their qualifying child or children for more than one-half of the year.
• Qualifying children without Social Security numbers: Another permanent ARPA change enables taxpayers whose qualifying children don't meet the Social Security number requirement to claim the EITC as if they were a taxpayer without qualifying children.

The IRS noted there are special rules for the EITC for military members, clergy members and taxpayers and their relatives with disabilities.