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Often-Overlooked Tax Credit Expanded, Now Covers More People with Disabilities

Posted by Susan Katzen | Mar 07, 2022 | 0 Comments

For tax year 2021, the IRS is expanding eligibility for the earned income tax credit (EITC), an important antipoverty measure that assists those with low-incomes. One key impact of these changes is that more people without children, many of whom are also people with disabilities, will qualify. Traditionally people with disabilities have “left money on the table” by assuming they wouldn't qualify for the EITC.

Here's how it works: if you file taxes and your earned income is below a certain level, you can apply the EITC to the amount of federal taxes you owe. For many EITC recipients, the credit may not only result in paying no taxes, but in receiving a refund from the IRS.

"There are important changes to EITC that will help this credit reach more hard-working families this year," IRS Commissioner Chuck Rettig said in a statement. "We urge people potentially eligible for this valuable credit to review the guidelines; many people each year overlook this and leave money on the table."

People with disabilities, especially those without children, have traditionally overlooked the EITC for various reasons. 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. 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. In fact, income from SSI, Social Security Disability Insurance (SSDI), , or military disability benefits is not considered “earned income” (see below for details).

Maximum Credit Triples

For tax year 2021, the EITC is available to individuals 19 years and older, without qualifying children and earning 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 worker: John is 50 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? This is a key question for people with disabilities, many of whom receive funds from several different sources.

Aside from wages, salaries, or tips, earned income includes earnings from work-for-hire contracts and self-employment, and payments from employer-provided disability benefits until the recipient reaches “minimum retirement age,” meaning the age the person could have begun receiving a pension or annuity from their former employer. 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, especially if you or a family member has a disability, it pays to look over the IRS changes carefully as you prepare your tax return for 2021. And it can't hurt!

For people needing assistance in filing their taxes, the IRS has a Volunteer Income Assistance Program, which provides free services for certain people making less than $58,000, including people with disabilities and limited English speakers. For the elderly, the IRS has a similar program, known as the Tax Counseling for the Elderly program.

If you have any questions about caring for your special needs loved one, give us a call at 717-374-2244 or fill out this form and we'll call you back. 

About the Author

Susan Katzen

"I firmly believe our clients should be treated the way I would want my own family members to be treated. As a result, not only have I put together a compassionate and highly skilled team of people, but together we have served families from the grandparents down to the grandchildren. My staff and...

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