This bill allows taxpayers to elect to use their higher earned income from the preceding year when calculating the Earned Income Tax Credit if their current year's income is lower.
Emilia Sykes
Representative
OH-13
The EITC Lookback Act allows taxpayers whose earned income has decreased from the previous year to elect to use their higher prior-year income when calculating their Earned Income Tax Credit (EITC). This provision is designed to help those with recent income drops potentially receive a larger credit. This new option will be available for tax years beginning after December 31, 2024.
New EITC Rule Lets Workers Use Last Year's Higher Income to Boost Tax Credit, Starting 2025
The aptly named EITC Lookback Act introduces a smart piece of flexibility into how the Earned Income Tax Credit (EITC) is calculated, specifically targeting folks who hit a rough patch. If your earned income drops from one year to the next, this bill lets you look back and use the higher income from the previous year to calculate your current EITC.
The Safety Net for Income Drops
For a lot of workers, the EITC is a crucial boost, but it can be tricky if your income fluctuates. Say you're a contractor and business slows down, or you have to take an unpaid leave of absence, or you lose a second job. Your income dips, and suddenly, the EITC calculation uses that lower number, potentially shrinking the credit you desperately need right when you need it most. This legislation fixes that by giving you an option: if your current tax year's earned income is lower than the year before, you can elect to use the preceding year's income instead (Sec. 2).
What This Means for Your Wallet
Think of it as an insurance policy against temporary income loss. The EITC is structured to phase in and then phase out based on income levels. If your income drops too low, the credit can decrease. By allowing you to use the higher prior-year income, the bill helps ensure that a temporary setback—like being laid off for a few months or having reduced hours—doesn't immediately slash your tax credit. For example, if a parent earned $35,000 last year but only $20,000 this year, they could use the $35,000 figure to calculate their EITC, likely resulting in a significantly larger refund than if they used the lower $20,000 figure.
When the Switch Flips
This isn't something you can use for your 2024 taxes that you file next spring. The EITC Lookback Act specifies that this new rule applies to tax years beginning after December 31, 2024 (Sec. 2). That means this option will be available when you file your 2025 taxes and beyond. Since this provision is entirely optional and offers a benefit with no new burdens, it’s a straightforward win for low-to-moderate income workers who experience income volatility.