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Generating the Earned Income Credit in Lacerte

by Intuit•2• Updated 4 months ago

Lacerte automatically determines whether the Earned Income Credit (EIC or EITC) applies based on your input throughout the return. However, you can force the worksheets when the Earned Income Credit isn't allowed to review the calculation.

Forcing the Earned Income Credit worksheets can help you determine why the EIC isn't generating, or whether using prior-year earnings is the best option for your client.

Starting in tax year 2022:

  • In order to qualify for any amount of the Earned Income Credit, if the taxpayer doesn’t have a qualifying child, they must be 25-64 years old at the end of the year.
  • If filing MFJ, only one spouse needs to meet the age requirement.
  • Starting in tax year 2021, the rules for Married Filing Separately taxpayers have changed:
    • You can claim the EIC if you are married, not filing a joint return, had a qualifying child who lived with you for more than half of 2021, and either of the following applies:
      • You lived apart from your spouse for the last 6 months of 2021, or
      • You're legally separated according to your state law under a written separation agreement or a decree of separate maintenance, and you didn't live in the same household as your spouse at the end of 2021.
  • Starting in tax year 2021, if the taxpayer is unable to verify the identification requirements for children, the taxpayer is no longer fully disqualified for EIC. The taxpayer and spouse may still be able to claim the childless EIC requirements.
  • Starting in tax year 2021, the Investment Income Limitation has been increased from $3,650 to $10,000 and will be indexed for inflation in future years.
  • For tax year 2021 only: If the taxpayer doesn't have qualifying children, the age requirements have changed:
    • You no longer need to be younger than 65 to claim EIC.
    • In general, the minimum age for EIC is 19; however:
      • If you are a qualified homeless youth, or former foster youth, the minimum age for EIC has been decreased to 18.
      • If you are a specified student, you need to be at least 24.
  • For tax year 2021 only: if the taxpayer has no qualifying children, the amount of EIC and threshold phaseout amounts have increased.
  • Extended for tax year 2021: In the 2021 tax year the taxpayer may elect to use the 2019 earnings instead of the current year earnings to calculate EIC.
  • See IRS Pub. 596for full details​.

Forcing or Suppressing the Earned Income Credit

To force or suppress the EIC "Earned Income Credit":

  1. Go to Screen 38.2, EIC, Residential Energy, Other Credits.
    • (Screen 39 in 2013 and prior years.)
  2. At the bottom of the Earned Income Credit section
  3. Enter a "-1" or an amount in, Earned income credit (EIC) [O] (code 6).*

    *Note:  Entering a "-1" will suppress the calculation.  Entering an amount will force that amount to line 66a on Form 1040.

Electing to use prior-year earned income

For tax year 2020 and 2021 returns, your client may elect to use their 2019 earned income to figure this credit if their earnings were greater in 2019 than in 2020 or 2021.

Follow these steps to make the prior-year earned income election:

  1. Complete the return (wages, dependents, etc.) as you normally would.
  2. Go to Screen 38.2 Recovery Rebate, EIC, Residential Energy, Other Credits.
  3. Scroll down to the Earned Income Credit section.
  4. Locate the 2022 Earned Income Election for EIC and/or Additional CTC subsection.
  5. Enter a 1 or 2 in the field labeled Elect to use 2022 earned income and nontaxable combat pay for: 1=EIC and additional child tax credit, 2=EIC only, 3=additional child tax credit only.
  6. Enter the amount of 2022 Earned income (not including nontaxable combat pay).
  7. Enter any 2022 Nontaxable combat pay, if applicable.

Make sure to check the return with and without this election to compare which option is more beneficial to your client. Since the EIC calculation is so complex, electing to use prior year earned income may have no effect on the credit amount, or could even lower the allowed credit.

Follow these steps to force the EIC worksheet:

  1. Go to Screen 38.2 Recovery Rebate, EIC, Residential Energy, Other Credits.
  2. Scroll down to the bottom of the Earned Income Credit section.
  3. Check the box labeled Force earned income credit worksheets.

Eligibility requirements

Your client may qualify for the Earned Income Tax Credit if they worked last year but didn't earn a lot of money. The EIC is a refundable tax credit, meaning your client could qualify for a tax refund even if they didn't have federal income tax withheld.

If your client qualifies, the amount of credit will depend on whether they have children, the number of children they have, and the amount of their wages and income, per Pub 596.

Refer to this IRS resource for information about Earned Income Credit eligibility requirements.

Lacerte Tax 2018Lacerte Tax 2019Lacerte Tax 2020Lacerte Tax 2021

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