EITC Lookback Act: Use Prior Year's Income for Potentially Larger Tax Credit Starting Tax Year 2025

The EITC Lookback Act introduces a straightforward change to how the Earned Income Tax Credit (EITC) can be calculated. Starting for tax years beginning after December 31, 2024, this bill amends Section 32 of the Internal Revenue Code to let taxpayers choose between using their current year's earned income or their prior year's earned income when figuring out their EITC. The key is simple: you can pick whichever year's income results in a larger tax credit for you.

Smoothing Out the Bumps: How the Lookback Works

The Earned Income Tax Credit, or EITC, is a significant tax break designed to help low-to-moderate-income workers and families keep more of what they earn. Normally, it's based purely on the income you earned in the tax year you're filing for. This bill adds flexibility. If your income took a nosedive this year – maybe you switched jobs, went freelance, or faced reduced hours – but you earned more last year, you can use that higher prior-year income figure to potentially qualify for a larger EITC. It’s about giving folks whose paychecks aren't always predictable a chance to maximize this important credit based on a slightly longer view of their earnings.

Who Gets a Boost? The Real-World Impact

This change primarily benefits people whose income swings up and down from year to year. Think about seasonal workers, freelancers navigating the gig economy, small business owners with variable profits, or anyone who experienced a temporary dip in earnings due to unforeseen circumstances. By allowing them to 'look back' one year, the act aims to provide a more stable EITC amount, preventing a sudden drop in this crucial refund just because of one tough year. It essentially offers a buffer, ensuring the credit reflects earning potential more consistently for those navigating the financial realities of today's job market.