Special Rules Apply to 2020 EITC and Child Credit
Article Highlights:
- Employment (Earned) Income
- Earned Income Tax Credit (EITC)
- Child Tax Credit (CTC)
- 2019 or 2020 Earned Income
- Credit Qualifications
Not wanting those who normally rely on those credits to make ends meet to suffer further economically, Congress came up with a special way to calculate the two credits for 2020. So, when figuring these 2020 credits, taxpayers are allowed to use the amount of their 2019 or 2020 earned income, whichever produces the better result. This will only affect the computation of the EITC and CTC and does not impact the gross income used for determining an individual’s income tax for 2020. The option of using 2019’s earned income is only available if it is higher than 2020’s earned income.
Earned Income Tax Credit (EITC) – Many years ago, Congress established the EITC as an income supplement for working individuals with lower-paying employment. If you qualify, it could be worth as much as $6,660 in 2020. It is a refundable credit. As mentioned above, the EITC is based on the amount of your earned income for 2019 or 2020 (income from work for wages and/or self-employment) and whether there are qualifying children in your household. Qualifying children are those who live with you for over half the year, are related, and are under the age of 19 (or full-time students under the age of 24). The credit increases, up to a point, as your earned income increases. The table below shows the earned income at which the maximum credit is achieved for 2020.
| Qualifying Children | Earned Income | Maximum Credit |
| None | $7030 | $538 |
| 1 | $10,540 | $3,584 |
| 2 | $14,800 | $5,920 |
| 3 or more | $14,800 | $6,660 |
The credit amount phases out after reaching the maximum based on filing status and number of qualifying children. The 2020 phase-out ranges are shown in the table below.
| Qualifying Childeren | Filing Status | Phaseout Range |
| None | Married Filing Jointly | $14,680–21,750 |
| None | Others | $8,790–15,820 |
| 1 | Married Filing Jointly | $25,220–47,646 |
| 1 | Others | $18,030–41,094 |
| 2 | Married Filing Jointly | $25,220–53,330 |
| 2 | Others | $19,330–47,440 |
| 3 | Married Filing Jointly | $25,220–56,884 |
| 3 | Others | $18,660–50,954 |
There are some additional qualification requirements; you, your spouse (if married and filing jointly), and each qualifying child must have a valid Social Security number (SSN), and you cannot use the filing status “married filing separately.” You cannot be a qualifying child of another person, your investment income for the year cannot exceed $3,650 (2020), and you cannot exclude earned income from working abroad. Also, you and your spouse (if filing jointly) must be U.S. citizens or resident aliens. If you do not have a qualifying child, you must be at least age 25 but under 65 at the end of the year.
With regard to the SSN requirement, note that to qualify for the EITC, everyone you claim on your tax return must have a valid SSN, meaning the SSN must be valid for employment and must have been issued before the due date (including extensions) of the tax return on which you are claiming the credit.
Even though this credit can be worth thousands of dollars to a low-income family, the IRS estimates that as many as 25 percent of people who qualify for the credit do not claim it, simply because they don’t understand the criteria. If you qualified for but failed to claim the credit on your return for 2017, 2018, and/or 2019, you can still claim it for those years by filing an amended or original return, if you have not previously filed. However, note the timing for issuance of the valid SSN as explained above. Please call for assistance.
Child & Dependent Tax Credit – To aid to families with children, the CTC is $2,000 for each qualified child. A qualified child for this tax credit is one who is under age 17 at the end of the year, is related, is not self-supporting, lived with you over half the year, has an SSN that was issued no later than the due date (including extensions) of the return, and is claimed as your dependent. The child must be a U.S. citizen, U.S. national, or U.S. resident alien. In addition, you (or your spouse, if filing jointly) must have an SSN or ITIN (Individual Taxpayer Identification Number) issued on or before the return’s due date (including extensions) to be eligible to claim the credit on either your original or an amended return.
The refundable portion of this credit is equal to 15% of your earned income but limited to $1,400.
You are also able to claim a nonrefundable credit of $500 for each of your dependents who do not qualify for the child credit.
For both the child and dependent credits, the credit begins to phase out for married taxpayers with an AGI of $400,000 ($200,000 for others).
If you have questions about these two credits and how the law change might benefit you, please give this office a call.
Want tax & accounting tips and insights?
Sign up for our newsletter.
Our Team
At IAM Accounting LLC, we take pride in our diverse and experienced team of professionals, each dedicated to providing exceptional service in accounting, tax planning, payroll, and financial management. Our team members bring a wealth of knowledge from various financial backgrounds, working together to ensure that every client receives the personalized attention and expertise they deserve. From managing complex accounting operations to providing tax-saving strategies, we’re here to help you achieve your financial goals with precision and care.
-
Ibrahim Mohammed
Founder & Tax StrategistIbrahim leads IAM Accounting LLC, offering expert tax strategies and financial guidance to help clients reduce tax liabilities and achieve their financial goals.
-
Jasleen Daswal
ControllerJasleen is a highly skilled Controller with over five years of experience as a Chartered Accountant. She ensures accurate financial management and oversees accounting operations.
-
Sahil Shaikh
Chartered Accountant & Tax PreparerSahil is a Chartered Accountant and tax preparer with expertise in tax compliance, financial reporting, and strategic tax planning, helping clients optimize their financial outcomes.
-
Ankit Gupta
Accounts AssociateAnkit brings a wealth of experience in finance and accounting, providing key support in day-to-day financial operations to ensure accuracy and compliance.
-
Neha Sharma
Key Accounts ManagerNeha manages our most valued client relationships, with over four years of experience as a Chartered Accountant, ensuring that client needs are met efficiently and professionally.
-
Michael Holsinger
Payroll Representative, ADP PartnerMichael is our dedicated payroll expert and ADP partner, managing payroll processes with precision and helping clients navigate payroll services seamlessly.