Did you make more in 2019 than in 2020? You could be eligible for a larger tax refund.
If you had less earned income in 2020 for any reason (maybe you lost your job in 2020 or had a baby), you may be eligible for a special COVID rule called the “lookback policy” that could make your refund bigger. Learn more about it in this video:
Who has the most to gain? Are you a single mom who made less than $10,540 from your job in 2020 but who made up to $30k in a prior year? You almost definitely can benefit from this rule!
Here’s how it works. Credits like the Earned Income Tax Credit and the Child Tax Credit are tied to your amount of earned income. Credits are important because they can be applied to the taxes you owe and then you can often receive them back as cash!
Let’s take an example.
So, let’s say that you worked in 2019 and made $18,000 that year. Then in 2020 you worked for a few months, and were laid off and collected unemployment for the majority of the year. If you look at your tax documents, you might see that you earned $3,000 from that first job (W-2 or 1099), and then collected $15,000 from your unemployment (1099-G) for the rest of the year. Unemployment compensation doesn’t count as “earned income” though, so you technically only had $3,000 in “earned income” from that year. So, for the purpose of the credits, you would only be able to get the credits associated with the $3,000 of earned income.
This year, the rule allows you to look back (get it? that’s why it is the lookback policy ha) to 2019 and use your earned income number to calculate the credits for 2020. To be clear, you are still paying taxes on your 2020 total income, but this rule allows you to us that 2019 figure of $18,000 to get the $3,584 amount of the EITC instead of the $850 you would get from your 2020 figure of $3,000.
This rule applies to BOTH the Earned Income Tax Credit and the Child Tax Credit. However, the two credits do work a bit differently. The Earned Income Tax Credit increases, levels off, and then decreases as you make more money. The Child Tax Credit, on the other hand, gets bigger as you make more money andmaxes out at $2,000.
Ok, so I get it means I may get more money in my tax refund. What can I do to be sure I get it if I am eligible?
- Make sure you have either your 2019 W-2 or 1099 information on hand or your 2019 tax return (your form 1040). It doesn’t matter if you filed taxes or not for 2019.
- If you are working with a preparer (like a VITA volunteer or through GetYourRefund) then ask them whether your 2019 or 2020 income will get you a bigger refund!
- If you are using software, it will prompt you to put in your 2019 incometo see whether the refund is bigger. Take a snapshot of the refund estimate in the software so you can see how it changes and you can determine which situation will get you a larger refund. To get a rough estimate, you could try putting in your 2019 income figure (with 0 withholdings and your 2020 dependent info) into our calculator and see how the size of your refund changes. Our calculator doesn’t account for an extra $600 you may be eligible for with the CTC though, so if you find your 2019 calculator results are less than $600 more than your 2020 result you should definitely try using the real tax software to see which is better.
Please spread the word so that families get their full refund this tax season!
