Working seniors without dependents may qualify for the earned income tax credit when they file their 2021 tax returns. The tax credit assists those with low incomes but was previously primarily available to people with young children.
If you file taxes and your earned income is below a certain level, you can apply the earned income tax credit (EITC) to the amount of federal taxes you owe. For many EITC recipients, the credit may not only result in paying lower or no taxes, but in receiving a refund from the IRS.
According to the IRS, many eligible people miss out on the EITC because they fall below the income threshold requiring them to file taxes, even though they can still file taxes and possibly get the credit in the form of a refund. Others incorrectly believe that receiving the EITC will jeopardize their eligibility for other government benefits. Refunds received via the EITC are not considered income for the purposes of means-tested government benefit programs, such as Medicaid, Supplemental Security Income (SSI), Supplemental Nutritional Assistance Program (SNAP) benefits, Section 8 housing, or other programs with maximum income limits.
Maximum Credit Triples
For tax year 2021, the EITC is available to individuals 19 years and older, without qualifying children who earn income up to $21,430. Married couples filing jointly qualify for EITC by earning up to 27,380. This limit goes up depending on the person’s tax filing status and the number of qualifying children in the person’s household. For a married couple filing jointly with three qualifying children, the maximum household income is $57,414. While in the past, the EITC was only available to people between the ages of 25 and 64, now those 65 and over can claim the credit if they have earned income.
Taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements. For 2021 only, the IRS has also lifted the child requirement, so that the maximum EITC for filers with no children is $1,502, almost three times more than the 2020 maximum of $538.
Here’s an example of how the credit might work for a single senior worker: John is 68 years old, single, and works part-time, earning $12,000 in 2021. This is just under the current income threshold required to file taxes, but if John does file and claims the EITC, he should receive a refund of $1,439, according to Tax Outreach’s Earned Income Tax Credit Estimator. If John earned $15,000 last year, he’ll be eligible for a $980 credit, according to the same estimator.
‘Earned Income’ Defined
What counts as earned income? Aside from wages, salaries, or tips, earned income includes earnings from work-for-hire contracts and self-employment. Investment income is also a factor, although for 2021 only, the IRS is capping this at $10,000. So if your earned income falls below the threshold, and you can also claim less than $10,000 in interest and gains on your investments, you could still qualify for the EITC program.
It’s just as important to note what doesn’t count as earned income. This includes Social Security, pensions and annuities, unemployment insurance, EITC refunds, and income from such government benefits programs as SSDI, SSI, and military disability benefits. In addition, disability income claims from a private insurance policy, in which the individual pays the premium, is not considered earned income.
If you think you might qualify for the EITC, it pays to look over the IRS changes carefully as you prepare your tax return for 2021. For people needing assistance in filing their taxes, the IRS’s Tax Counseling for the Elderly program provides free tax services for people aged 60 and older.
For the IRS’s recent update on the program, including a link to a YouTube video on how the EITC can put more money in your pocket, click here.
To get started on your estate plan or elder law planning, contact the Laiderman Law Firm.