• What are the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC)?
  • The new “lookback” allows struggling households to apply 2019 incomes for maximum benefit from the credits.

The EITC and ACTC are two of the most lucrative tax credits available to low-to-mid-income families. Yet, according to the IRS, 1 in 5 eligible households doesn’t file for the credit. Why? Many taxpayers don’t know about this hidden gem, and those who do know aren’t sure whether they qualify. Now, for the 2020 filing year, provisions from the Consolidated Appropriations Act have extended the benefits of these credits with a new, temporary relief: the lookback rule.

The EITC and ACTC are tax credits based on earned income. Pre-pandemic, the qualifications were quite simple: the lower your income and the more children (“dependents”) you had, the greater the benefit of the credit. During the pandemic, many households lost their earned incomes, receiving solely unemployment payments. While unemployment is taxable, the IRS does not consider it “earned” income. Such households with no legitimate, earned income became ineligible for the EITC and ACTC.

If it seems a bit backwards, that’s because it is. How could a family living on unemployment not qualify for such a vital tax credit? This is where the lookback rule comes into play.

Taxpayers who earned less in 2020 than they did in 2019 can now “lookback” on and apply their 2019 incomes to benefit from the EITC and ACTC. The credit is refundable. Its primary application is to bring one’s tax liability as close to $0 as possible. However, if the credit amount is large enough, taxpayers can get $0 in liability and a refund with the remaining credit money.

This credit will be crucial to the financial survival of struggling households living off unemployment after the pandemic. We strongly urge those in such situations to take advantage of this lucrative opportunity. Please note that the lookback rule is only applicable for the EITC and ACTC and may not be used for lowering other tax liabilities.

Accordingly, the IRS will be heavily monitoring returns that apply these credits in search of tax fraud. Tax preparers must be precise when running 2019/2020 comparisons and exact when applying the credit to yield the most benefit but avoid any trouble with the IRS.

DSJCPA’s expert tax preparers are ready to take on this challenge and help your family receive maximum tax benefits this filing season. Call our offices at 516-541-6549 or visit our website to learn more about how we can help.


Devin McQuillan
Associate, Creative Solutions

516-541-6549 | Email

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