The Earned Income Tax Credit is a measure that helps reduce the amount of taxes that medium-income and low-income taxpayers ultimately have to fork out. The exact amount of credit you can receive depends on a number of factors, with these credits ranging from $1,502 to $6,728 for the 2021 tax year.
This is a benefit for people in work who are paying taxes, but what about those who are self-employed? Here, we outline who exactly qualifies for the Earned Income Tax Credit and how to claim it.
Who qualifies for Earned Income Tax Credit?
At the most basic level, the eligibility criteria for Earned Income Tax Credit are the following:
- Have worked and earned income under $57,414
- Have investment income below $10,000 in the tax year 2021
- Have a valid Social Security number by the due date of your 2021 return (including extensions)
- Be a US citizen or a resident alien all year
- Not file Form 2555 (related to foreign earned income)
Can you claim Earned Income Tax Credit if you are self-employed?
Yes, if you are self-employed you can also claim this credit, assuming you meet the other Earned Income Tax Credit criteria outlined above.
The IRS considers all earned income as being eligible for this credit and this includes that received from self-employment. This, though, might push some people over the $57,414 threshold, but if you remain under that limit when combining earnings from self-employment with earnings from wages, salaries, tips, union strike benefits and long-term disability benefits received prior to minimum retirement age, you can apply for this credit.
It should be kept in mind that applying for the Earned Income Tax Credit can slow down the tax filing process and delay any tax refunds you might be owed. But, you will ultimately get your money and this can reduce the amount of tax you have to pay.