Every year, the federal government hands out money for free. However, one out of five people who are eligible doesn’t claim it. 

That sounds crazy, right? Who foregoes free money? And how can you be eligible to get it?

For all you know, you might be one of the crazy ones. This free money I’m talking about comes in the form of the Earned Income Tax Credit (EITC). In 2020, the government handed out $57 billion in EITC alone. That means there was $14.25 billion last year up for grabs and some of it could have been yours.

What Is The Earned Income Tax Credit?

The EITC is the government’s attempt to offset some of the payroll taxes for lower-income workers. Everyone pays payroll taxes at a flat rate (more or less). It is not a progressive system like income taxes where those with more earnings pay a larger percentage of their income. To make things more progressive and lighten the load on those that don’t make as much, they created the Earned Income Tax Credit. 

The EITC is a refundable credit. That means first it is used to offset your income tax bill. If you’ve taken your tax liability down to $0 without using up all of the EITC, then the IRS will cut you a check for the remainder. Pretty nice, huh?  

How Does The Housing Allowance Affect The Earned Income Tax Credit?

The EITC is based on income, which is rather straightforward for most people. But not pastors. Does the housing allowance count as income or not? The answer to that question flips back and forth depending on the government program or tax benefit that you’re referring to. In this case, the answer is both yes and no. Like I said, not very straightforward.

If you have opted out of Social Security with Form 4361 or Form 4029, then your housing allowance DOES NOT count as income for purposes of calculating the Earned Income Tax Credit. If you’re exempt from self-employment taxes, then your housing allowance is exempt from counting towards the EITC. When you do still participate in the Social Security system, then your housing allowance DOES count as income for the EITC. It is part of your net self-employment income.

No Social Security = No Housing Allowance

Yes Social Security = Include Housing Allowance

How To Claim The Earned Income Tax Credit

If 20% of the people eligible for this refundable tax credit don’t claim it, how do you know if you’re one of them? The IRS has a nifty calculator, called the EITC Assistant, to help you. You’ll need to input your income, so make sure you are including/not including your housing allowance per the guidelines above. 

The first step in claiming the tax credit is filing a tax return. Even if you don’t owe any taxes, you will need to file a return in order to claim the credit. If you file your own taxes, make sure to follow the IRS instructions for calculating the EITC carefully. Here is a handy list that they’ve published of errors to watch out for. The EITC is a part of the regular Form 1040 tax return, so you will see it come up as you fill out your forms. When using tax preparation software, make sure that things are calculated correctly, because not all software is programmed properly for the minister’s housing allowance!

After reading this, you may be thinking about previous years’ returns and wondering if you missed out on some money. Worry not! You can claim the EITC for prior years by filing an amended return. This IRS page has all of the information you need in order to do it.

If you are looking for a tax preparer, there is a list of reader-recommended professionals at the end of this article.

On Friday afternoon, President Trump signed into law our nation’s largest-ever economic stimulus package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The bill will cost around $2 trillion and includes nearly $500 billion for rebate checks for individuals and families, another $500 billion to support severely damaged industries, nearly $400 billion dollars to provide tax credits for wages and payroll tax relief, over $300 billion to assist state and local governments, and almost $150 billion to support hospitals and the healthcare system. 

This article will only look at the rebate checks, but you can read a full run-down of how the entire bill affects individuals and families here. The rebate checks are perhaps the most eagerly anticipated part of the bill for individuals, so today we are going to answer all of your questions about them.

Who Gets Rebate Checks?

Basically, there are only three kinds of people who are not eligible for “recovery rebates,” as the CARES Act calls them. First, people without a work-eligible Social Security number cannot receive them. That means undocumented immigrants since even those here on a student visa get a Social Security number to enable them to work on their school campus.
  

The second kind of people who won’t be getting a refund check is those who make too much money. There are income limits for eligibility, so most people with a six-figure salary will not be receiving a check. We will get into the details on that below.

The final kind is those who are claimed as a dependent on someone else’s tax return. Children under the age of 17, while they will not receive their own check, are worth $500 each to their parents. However, dependent 17-year-olds and older dependents are not eligible to receive checks. I guess Congress doesn’t realize how much 17-year-olds eat, otherwise, they would be worth twice as much for their parents!

Aside from the above mentioned-people, pretty much everyone else is eligible for a rebate check, even if they do not have earned income. Whether or not you are already receiving government benefits doesn’t matter either, you will still be eligible to receive a check.

How Do You Claim Your Check?

You don’t have to do anything to claim your check. The IRS will use their records to calculate your check and get the money to you. If you have requested a direct deposit for your tax return and given them your bank information, then the rebate will be deposited directly into that bank account. Otherwise, they will mail it to you. Though you aren’t required to take any action, there are some things you may want to do to help out the process, though. 

The IRS will use the information from your most recent tax return for the rebate checks. That means they will use your 2019 return if you have already filed it or your 2018 return if you haven’t gotten 2019 done yet (and remember, the IRS has given you until July 15 to file your return this year!). If you haven’t filed a tax return in the past two years, or if your information has changed, you should file a 2019 tax return as soon as possible so that the IRS has the most accurate information for you. This is a good idea if you have a new address, the bank account you use for direct deposit has changed, you have had a baby, or you are near the cutoffs and your 2019 income is lower than your 2018 income.

How Much Will I Get?

Here’s the burning question: what’s in it for me? As I’ve already said, there are income limitations and calculations are based on your 2018 or 2019 tax returns. The way the income limitations work is that once you hit a certain income, your rebate check is lowered by $5 for every $100 of income you have (5%), so there is a phaseout period. The phaseout for individuals starts at $75,000 of adjusted gross income, heads of household at $112,500, and married couples at $150,000. The base rebate amount is $1,200 for individuals and $2,400 for couples. Then, children under 17 add on an extra $500 each. 

Here is an example of how it is calculated for a couple with three kids under 17 and an adjusted gross income of $185,000:

The couple will get a rebate of $2,150.

You can use this worksheet to calculate your own rebate:

Here is a graph from the Tax Foundation that illustrates how the phaseout works:

Technically, these checks are rebates for your 2020 taxes. However, the government wants you to get them as soon as possible, so they are using 2018 or 2019 figures to calculate them. Why does that matter?

If your 2018 or 2019 income is too high for you to get a check but your 2020 income isn’t, you will still get a rebate. You’ll just get it when you file your 2020 tax return next year. Don’t worry if you get a rebate and then your 2020 income is too high for you to be eligible, though. The government isn’t going to make anyone pay it back. Isn’t that nice of them? 

When Will I Get My Check?

Now that you know how much you’ll get, when will it arrive? The legislation specifies “as soon as possible,” but this is the government we’re talking about, not Amazon Prime. The Treasury Department says rebates could start flowing as early as three weeks from now, but it is more likely that they will arrive in May. 

There you have it. Now the big question is, what are you going to do with it? If you need it to cover your basic expenses, then that’s a no brainer. If you don’t have much in savings, then that’s a great choice as well. If, however, you have plenty in savings and aren’t at risk of losing your income, this might just be a great opportunity to be like Jesus and show his love to those in need.