cloudy.png
Thursday October 21st, 2021 2:27PM

Lost a job or income? Don't lose access to key tax credits

By The Associated Press

Americans who lost their job or some of their income in 2020 should pay attention to a new, one-time provision that ensures they don't lose access to valuable tax credits as well.

The “lookback” rule allows taxpayers to use either their 2019 or 2020 income, whichever is most beneficial, in order to get the most out of the Earned Income Tax Credit and the Child Tax Credit. These are considered the two most valuable tax credits for low- and moderate-income working families.

Together, they lift more working-age people out of poverty than any other government program, said Elaine Maag, a principal research associate at the Tax Policy Center.

Taxpayers qualify and receive credits based on their income and number of dependents. In general, the less you earn, the larger the credit. And they are refundable tax credits, which are particularly beneficial because they can reduce the amount of tax someone owes to zero or potentially yield a refund.

However, some people were potentially facing a smaller credit or no credit because of job loss or reduced income in 2020. That can mean the difference between a refund, which is a financial lifeline in many households, or even owing taxes.

That is because people need some earned income to claim the credits and money from unemployment benefits is not considered earned income in the eyes of the IRS.

So lawmakers, as part of a relief package passed in December, decided taxpayers could “lookback" to their 2019 income to claim these credits.

While it is unclear exactly how many people stand to gain from this new rule, the bulk of the job losses were among lower income workers, who benefit the most from these credits.

The Earned Income Tax Credit is worth $538 to $6,660 depending on income and number of children. People without children can claim the EITC, although its value is much lower. The Child Tax Credit offers up to $2,000 per qualifying dependent child.

“It is certainly true that as the economy is struggling, it is undesirable for a person to be hit with not just an earnings loss but also an EITC or CTC loss," Maag said. “Efforts to offset this are commendable and will hopefully not end up creating additional complexities for people who already have complex tax returns."

It is important for taxpayers to be careful when preparing their taxes. The are different calculations for the EITC and the CTC. And the IRS keeps a close watch on those who claim these credits in an effort to avoid fraud.

“Unfortunately...it is a high audit area," said Arnold van Dyk, director of Tax Service for Tax Audit. “Make sure you can substantiate it even if you do qualify and it is your own children."

Tax software should walk you through all the steps to determine if you qualify, as should a qualified tax professional. There is also a wealth of information on both credits on the IRS website.

“There is so much at stake for the families impacted," said Timothy Flacke, co-founder and executive director of Commonwealth, a nonprofit organization that aims to build financial security for vulnerable groups.

Flacke worries some families may be unaware of the lookback provision or have difficulty seeking help with filing as they avoid meeting with people face-to-face. That could lead to fewer or smaller refunds, which Commonwealth said would be “yet another financial shock for low-income families following a year already defined by its unpredictability."

Families tell Flacke's organization that they often “hold their breath" until their refund arrives, using it as a way to catch up on bills, pay down debt, boost their savings, or pay for medical procedures or other expenses they have delayed.

Congressional Democrats are working on a plan, as part of President Joe Biden’s $1.9 trillion coronavirus relief plan, that would temporarily raise the child tax credit to as much as $3,600 per child annually.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Careers, AP Business - Personal Finance
© Copyright 2021 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
South Africa scraps AstraZeneca vaccine, will give J&J jabs
South Africa's health minister says the country will begin administering the unapproved Johnson & Johnson vaccine to its front-line health workers next week
4:20AM ( 21 minutes ago )
Eiffel Tower needs blowtorch for ice as snow blankets Europe
Workers at the Eiffel Tower are using a blowtorch to melt the ice collecting on its surfaces, and snow is blocking roads and halting trains and school buses across northern France
4:10AM ( 31 minutes ago )
Global stocks advance after Wall St snaps winning streak
Global stock prices and U.S. futures are higher after Wall Street broke a six-day winning streak
3:56AM ( 46 minutes ago )
Associated Press (AP)
Lockdowns weigh on German beer sales, hurt small brewers
The closure of bars and the cancelation of major events in Germany are a big problem for the country's many small brewers, which rely heavily on selling draft beer to bars and restaurants
3:16AM ( 1 hour ago )
Surging virus in French African outpost reveals inequalities
It’s the poorest corner of the European Union and was the last to receive any coronavirus vaccines
2:53AM ( 1 hour ago )
The Latest: Japan will begin giving COVID vaccine next week
Japan will begin administering the COVID-19 vaccine next week, with medical experts at the pandemic’s frontlines the first recipients
2:43AM ( 1 hour ago )
AP Business
Dems propose $1,400 payments as part of Biden virus relief
Democrats on the House Ways and Means Committee are proposing an additional $1,400 in direct payments to individuals, bolstered unemployment benefits and more generous tax breaks for families with children and for lower earners
12:20AM ( 1 day ago )
The Latest: NFL offers league's 30 stadiums for vaccinations
The NFL is telling the federal government it will make the remaining of the league’s 30 stadiums available for COVID-19 vaccination sites
3:47PM ( 4 days ago )
A meager gain in US jobs last month highlights virus' damage
America’s employers barely added jobs last month, underscoring the viral pandemic’s ongoing grip on the economy and likely adding momentum to the Biden administration’s push for a bold rescue aid package
2:36PM ( 4 days ago )
AP Business - Careers
Sportbooks say pre-Super Bowl push for new customers scored
America's sportsbooks blanketed the country in waves of advertising in the two weeks leading up to the Super Bowl
5:33PM ( 11 hours ago )
Stocks push to more gains, and record highs, on Wall Street
Stocks pushed to more gains and record highs on Wall Street, just as the market came off its biggest week since November
4:40PM ( 1 day ago )
Tax forms help reveal extent of unemployment fraud in US
Unemployment agencies across the U.S. became lucrative targets for criminals when they were bombarded with claims last year as millions lost jobs due to coronavirus shutdowns
7:26PM ( 4 days ago )
AP Business - Personal Finance
South Africa scraps AstraZeneca vaccine, will give J&J jabs
South Africa's health minister says the country will begin administering the unapproved Johnson & Johnson vaccine to its front-line health workers next week
4:20AM ( 21 minutes ago )
Eiffel Tower needs blowtorch for ice as snow blankets Europe
Workers at the Eiffel Tower are using a blowtorch to melt the ice collecting on its surfaces, and snow is blocking roads and halting trains and school buses across northern France
4:10AM ( 31 minutes ago )
Global stocks advance after Wall St snaps winning streak
Global stock prices and U.S. futures are higher after Wall Street broke a six-day winning streak
3:56AM ( 46 minutes ago )
From rom-coms to murder: Hugh Grant is enjoying the darkness
Hugh Grant has gone dark
3:55AM ( 46 minutes ago )
Merkel, state governors to decide on lockdown extension
German Chancellor Angela Merkel is meeting with the governors of the country’s 16 states to decide whether a second lockdown will be extended beyond mid-February
3:53AM ( 49 minutes ago )