ORLANDO, Fla. - A new rule for the 2020 tax season will help thousands of people who lost jobs last year qualify for a key tax credit, ensuring they still receive a tax refund.
The loopback rule applies to the Earned Income Tax Credit or (EITC), which helps low to moderate income workers and families get a tax break, according to the IRS website. People must fall within certain income brackets and if they qualify, the credit can be used to reduce the taxes a person owes and maybe increase their refund.
Local accountant Yvette Anderson said the EITC is based on how much money a person earns and other factors. But with millions of people out of work in 2020, people earned less money.
"There would be a lot of money left on the table when it comes to earn income credit because people would have to use the income that was stated on their W-2 for 2020 even if they only work three months because of COVID-19 versus working a whole year," Anderson said.
But the federal government included a special provision in the latest stimulus package passed in December 2020 that would allow a person to choose between using their 2020 adjusted gross income or (AGI) or their 2019 AGI when calculating the EITC.
Anderson said, "For example, if a person made $26,000 in 2019 and 2020 they made half of that, the $26,000 will help you qualify for more earn income credit versus the $13,000."
She said millions of Americans take advantage of the EITC every year and it could make a huge difference in the tax refund they receive. "It could mean the difference of getting thousands of dollars versus hundreds."
Anderson said the EITC credit will not automatically be applied and suggests using an accountant to help prepare your taxes if you are interested in claiming it. She said people should use the IRS EITC Assistant on the IRS website to determine if you qualify for the EITC credit.
"If you feel like your income was reduced by even $5,000 you need to find out if you qualify for it because… it's not just for people who have children. That is a very huge misconception," she said.
If someone is interested in claiming the EITC they will have to file a federal tax return and file a 1040 individual income tax return. They should also have their 2019 tax returns readily available.
The IRS website said claiming the EITC could delay your tax refund because, by law, it cannot be issued until Mid-February. Anderson said that means people may not see their refund checks deposited electronically in their bank accounts until March 1 at the earliest.
To see if you may qualify for the EITC use the IRS EITC Assistant.