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IRS Sex workers taxes

Changes to the earned income tax credit for the 2022 filing season

The EITC is one of the federal government’s largest refundable tax credits for low-to moderate-income families. The recent expansion of this credit means that more people may qualify to have some much-needed money put back in their pocket.

The IRS urges people to check to see if they qualify for this important credit. While people with income under a certain amount aren’t required to file a tax return because they won’t owe any tax, those who qualify for EITC may get a refund if they file a 2021 tax return.

Here’s an overview of the recent notable changes to the EITC for tax year 2021 only:

Expanded EITC for people who do not have qualifying children
More workers without qualifying children can qualify for the EITC, and the maximum credit amount is nearly tripled for these taxpayers this year. For the first time, the credit is now available to both younger workers and senior citizens. There is no upper age limit for claiming the credit if taxpayers have earned income.

The EITC is generally available to workers without qualifying children who are at least 19 years old with earned income below $21,430 for those filing single and $27,380 for spouses filing a joint return. The maximum credit for taxpayers with no qualifying children is $1,502. There are also special exceptions for people who are 18 years old and were formerly in foster care or are experiencing homelessness. Full-time students under age 24 don’t qualify.

Some taxpayers can use 2019 earned income to figure their EITC
Taxpayers can elect to use their 2019 earned income to figure their 2021 earned income credit if their 2019 earned income is more than their 2021 earned income. This option may help workers get a larger credit if they earned less in 2021 from employment. Taxpayers can review line 27c of the instructions for Form 1040 for more information.

Phaseouts and credit limits
For 2021, the amount of the credit has been increased and the phaseout income limits have been expanded.

Any third-round Economic Impact Payments or child tax credit payments received are not taxable or counted as income for purposes of claiming the EITC. People who are missing a stimulus payment or got less than the full amount may be eligible to claim the recovery rebate credit on their 2021 tax return.

New law changes expand the EITC for 2021 and future years. These changes include:
• More workers and working families who also have investment income can get the credit. Starting in tax year 2021, the amount of investment income they can receive and still be eligible for the EITC increases to $10,000. After 2021, the $10,000 limit is indexed for inflation.
• Married but separated spouses can choose to be treated as not married for the purposes claiming EITC. To qualify, the spouse claiming the credit cannot file jointly with the other spouse. They must have a qualifying child living with them for more than half the year and either:
o Do not have the same principal residence as the other spouse for at least the last six months out of the year.
o Are legally separated according to their state law under a written separation agreement or a decree of separate maintenance and not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed. Taxpayers should file Schedule EIC – Form 1040 and check the box showing them as married filing separately with a qualifying child.
• Single people and couples with children who have Social Security numbers can claim the credit, even if their children do not have SSNs. In this instance, they will get the smaller credit available to workers who do not have qualifying children. Taxpayers should complete Schedule EIC and attach it to Form 1040 or 1040-SR if they have at least one qualifying child, even if the child doesn’t have a valid SSN. For more information, taxpayers should review the instructions for Form 1040, line 27a, and Schedule EIC

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IRS Sex workers taxes

How a taxpayer’s filing status affects their tax return

A taxpayer’s filing status tells the IRS about them and their tax situation. This is just one reason taxpayers should familiarize themselves with each option and know their correct filing status. The IRS Interactive Tax Assistant can help them determine their filing status.

A taxpayer’s filing status typically depends on whether they are considered unmarried or married on Dec. 31, which determines their filing status for that entire year.

More than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to owe the least amount of tax.

When preparing and filing a tax return, filing status determines:
• If the taxpayer is required to file a federal tax return
• If they should file a return to receive a refund
• Their standard deduction amount
• If they can claim certain tax credits
• The amount of tax they owe
Here are the five filing statuses:
• Single. Normally, this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
• Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. If one spouse died in 2021, the surviving spouse can use married filing jointly as their filing status for 2021 if they otherwise qualify to use that status.
• Married filing separately. Married couples can choose to file separate tax returns. This may benefit taxpayers who want to be responsible only for their own tax or if it results in less tax than filing a joint return.
• Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
• Qualifying widow or widower with dependent child. This status may apply to a taxpayer filing a 2021 tax return if their spouse died in 2019 or 2020, and they didn’t remarry before the end of 2021 and have a dependent child. Other conditions also apply.