Picture this: You are completing the quality review with a client, and all was going well, but now they are disappointed with their refund. This client, Tiffany Taxpayer, mentions that she normally receives a larger refund, but wonders if this low refund is the result of taking a lower-paying job this year. You then remember that earlier in the review, Tiffany mentioned receiving unemployment benefits and that she had earned less income since the COVID-19 Pandemic struck. You then realize Tiffany may qualify for the Earned Income Tax Credit (EITC) lookback rule and there is a chance her refund will increase if she does.

This tax season, the EITC lookback rule has increased the refunds of around 5% of the taxpayers coming to my organization's VITA (Volunteer Income Tax Assistance) sites. This may not seem large, but to a family counting on every dollar of their refund, this rule means anything from a few hundred to a few thousand dollars of additional refund money in their pockets. I see this as a key tool to help families and individuals most impacted by the pandemic, and in this DelBene Dispatch, we will break down the lookback and share some best practices to make sure your clients receive this credit - even if they have already filed their 2021 taxes.

What is the EITC ‘Lookback rule’ and why does it matter?

The Earned Income Tax Credit (EITC) lookback rule lets taxpayers with lower earned incomes use either their 2019 or 2021 income to calculate the EITC - whichever one leads to a better refund for the taxpayer. This includes those that received unemployment benefits or took lower-paying jobs in 2021. If the client’s earnings are higher in 2021 than in 2019, then you must use the 2021 income. The lookback rule also applies to 2020 tax returns and still uses the 2019 income to calculate the maximum EITC.

Many taxpayers don’t know about this benefit and there is not a question requesting the taxpayer's 2019 earned income in the 13614-C (Intake/Interview & Quality Review Sheet). As tax preparers, we must have a firm understanding of the rule and make sure our clients are not missing out on the increased EITC they are eligible for across both tax years.

Who qualifies for the EITC Lookback?

Anyone with a higher earned income in 2019 than 2021 (or 2020) can qualify for the lookback. Clients that received unemployment benefits or earned less income in 2021 than in 2019, may qualify.

How do I help my client claim the EITC Lookback?

At my sites, we have started the practice of asking every taxpayer if their income was about the same, less, or more in 2019 compared to this past year. We typically have the intake coordinators write this in the notes area of the 13614-C and we have trained our tax preparers and QRs to let the clients know that if they made more in 2019, we may need to see their 2019 refund to make sure they are getting the biggest refund possible. We also have updated our appointment phone line recording and asked clients to bring in both their 2019 and 2020 returns when possible. Next, we’ll discuss where to find the 2019 earned income on that tax return.

Calculating the earned income

The team at the Center for Budget and Policy Priorities Get It Back Campaign wrote a great piece about calculating 2019 earned income for the purposes of the lookback rule and where you can find it on the tax return. This article includes three methods for locating the client's 2019 earned income on their 2019 tax return.

         1. Method 1: Go to the 2019 form 8812 line 6a

         2. Method 2: Go to the 2019 EITC Worksheet A line 1

        3. Method 3: Go to the 2019 form 1040 line 7 and Schedule 1 if self-employed

If the taxpayer is not self-employed and only receives payments from employers on form W2, then line 1 from the 1040 is their 2019 earned income.

If the taxpayer is self-employed go to Schedule 1. Subtract line 14 from Schedule 1 from line 3 from Schedule 1 and add that number to the amount on 1040 line 1. The result is the taxpayer's earned income if self-employed.

Now that you know how to locate or calculate the taxpayer's 2019 earned income, let's discuss where you enter it in TaxSlayer.

Enter the EITC Lookback in TaxSlayer

Note: I am aware that all VITA sites do not use TaxSlayer but it is the most popular software used by VITA and Tax Aid programs, so we will discuss it below. If your site uses different software, your process will be similar, but slightly different based on that specific software. If you are helping taxpayers to prepare returns using MyFreeTaxes, you’ll find instructions and screenshots here.

On the Personal Information page where you enter the client's name, address and phone number, there are a number of checkboxes under the Occupation field. The 8th checkbox, “Taxpayer wishes to elect to use their 2019 earned income to figure their 2021 earned income credit and/or child tax credit.”, needs to be checked. The area under the checkbox will expand once it’s been checked and that’s where you enter the taxpayer's 2019 earned income.
 

Now click ‘continue’ at the bottom of the page and the return will update and use whichever earned income is best and most appropriate for the taxpayer.
 

What if the taxpayer can’t find their 2019 return?

There are a few different options:

If they prepared their taxes at your site in 2019, you can pull up the 2019 return in the tax software that your site uses and grab the information you need.

If the taxpayer prepared their taxes at another site, they can call their tax preparer or log in to the software they used to prepare their 2019 return.

Request a tax transcript from IRS online. Transcripts can also be requested by mail, but keep in mind that the IRS has a large backlog of unopened mail, so online requests are encouraged. To aid the client in requesting their transcript online you’ll need the taxpayer's SSN, date of birth, filing status, mailing address from your latest tax return, access to your email account, personal bank account numbers and a mobile phone.

Lastly, you can help the client to recreate the return by using their 2019 tax documents.

What if my client already filed their taxes and I now realize they qualify for the lookback rule?

If the taxpayer filed their taxes at your site and it’s already been accepted by IRS, you can help the client to amend their taxes and submit the amendment electronically to IRS. It will take time for IRS to process the return but filing electronically will be much faster than mailing a paper return. Also, you should wait till a client has received their refund before filing the amendment, so there is no confusion in IRS’s system.

Perform a lookback audit using TaxSlayer reports

You might be thinking, I’ve made it this deep into tax season and I want to make sure that I haven’t missed any taxpayers that qualify for the lookback. In this section, we’ll highlight the best reports to review in TaxSlayer to find out which of your clients likely qualify and which may be worth reaching out to.

First, sign into TaxSlayer. If your account settings are set to Admin, Superuser, or E-file manager, you should be able to see the Report button once you sign in. Click the Select button next to Reports.

From there, scroll down and select management reports and click Select.

Select Federal Return Summary, the third option under Summary Reports.

On the next screen, make sure the tax year is set to 2021 and update the start date to either the first day your site was open or January 1, 2022. Next, change the end date to today’s date if not already set. Be sure to also check the boxes under the EFIN selection tab.

Select Run Report for Export. This will generate a preview of the report, but to get the full report you’ll need to download the file by clicking Export Full Report.

Next, open the report with your favorite spreadsheet software (ex. Microsoft Excel or Google Sheets) and scroll over to column CY. This column contains information about all of the returns transmitted at your site that included unemployment income. You can use this newly filtered report to create a list of clients to reach out to. If these clients had higher earned incomes in 2019, it's highly likely they qualify for the lookback rule.

Additionally, this report also includes client names, contact information, and Adjusted Gross Income (AGI) which should make outreach to clients a little easier.