Missouri’s state lawmakers recently passed legislation that created an Earned Income Tax Credit (EITC), which is also known as the Missouri Working Families Tax Credit. Those who are eligible will receive a credit worth 10 percent of the federal EITC. The credit will provide much-needed tax relief to an estimated 250,000 Missouri families, including 409,000 children.
Here are a few things to know about the EITC:
1. Eligibility is limited to low-to-moderate income earners.
The general eligibility rules for the EITC include:
- Taxpayers must file as individuals or married filing jointly.
- If married — you, your spouse and your qualifying children must have valid Social Security numbers.
- You must also be 25 or older but younger than 65.
Although the EITC typically is considered a credit for low-income filers, there are many variations of income, filing status and number of qualifying dependents that affect eligibility. For example:
- In 2020, a married couple with three children and adjusted gross income of $56,844 or less could receive up to $6,660.
- An individual who earns $15,820 and has no children may receive up to $538.
It’s recommended that all filers explore their eligibility for receiving the EITC each year. For the 2020 tax year, the maximum credit is $6,660.
2. Self-employed tax filers are eligible.
Many filers, especially self-employed individuals, fail to take advantage of credits because they think they are ineligible. The IRS considers all income that is earned to be eligible for the credit. This includes:
- Wages
- Salaries
- Tips
- Union-strike benefits
- Long-term disability benefits received prior to minimum retirement age
- Net earnings from self-employment
- Gross income received as a statutory employee (an independent contractor under common law rules)
Types of income that do not qualify as earned income for the credit include:
- Child support
- Retirement income
- Social Security benefits
- Unemployment benefits
- Alimony
- Pay received for work while in prison
3. Investment income can cause disqualification.
In 2020, income derived from investments causes disqualification if it is greater than $3,650 in one year. This total could include income from stock dividends, rental properties or inheritance.
4. Eligibility may fluctuate.
Taxpayers should pay attention to their EITC eligibility every filing year, as tax laws and personal tax situations can change. Changes that could affect your eligibility for the EITC can include:
- New job
- Unemployment
- Loss of an annual bonus
- Change in marital status
- Change in a spouse’s employment situation
The EITC is one of the most valuable credits available to struggling Americans. Consult your tax advisor for more information pertaining to your eligibility, and how to maximize the earned income tax credit.
