Do I use total prior yr Earned Income from LY joint return instead of current Yr EI (LY > CY) on this years Head of HH return or do I only use my specific income?

[frieddillpickle]

Going through a divorce but not finalized.  LY earned income was joint, this years only mine as a head of HH.  LY joint was more than mine alone this year,  Turbo Tax EIC asks for LY EI and uses total reported income.  What is correct, use just mine for both years?

[Cynthiad66]

Use whichever provides biggest tax break.

“Lookback” rule lets you use 2019 income on two credits for 2020 taxes. Taxpayers who claim the Earned Income Credit (EIC) and Additional Child Tax Credit (ACTC) received some good news recently. ... stimulus bill lets you continue to claim these valuable credits–even if your income changed in 2020.

This is a very important provision which has the potential to help workers who experienced lower income in 2020, or received unemployment income in lieu of their regular wages, get bigger tax credits and larger refunds in the coming year.

The special lookback rule will allow lower income individuals to use their earned income from 2019 to determine their Earned Income Tax Credit and the refundable portion of the Child Tax Credit in 2020, since their lower 2020 income could reduce the amount they are eligible for.

The Earned Income Tax Credit is the country’s largest program for working people with low to moderate income. More than 25 million eligible tax filers received federal Earned Income Tax Credit last tax season and the average Earned Income Tax Credit was $2,476 per filer.

[frieddillpickle]

Thanks but the real question is I was married joint LY and most income was from my spouse. This year I can file Head of Household (no spouse). Do I have to separate and use LY income of just mine for the look back?

[JohnW152 · Accepted solution]

Since you're no longer filing jointly, you'd make the computation using only your own earned income from 2019 (i.e., don't include your ex-spouse's earned income) in making the computation.

[frieddillpickle]

Thanks for that directional answer.  Is there a reference in any publication? In turbo tax, it didn't take this into consideration or ask the question even though I did both years returns in turbo tax.  It should at least be something that is flagged "did you change filing status' between years?"  It is a significant impact if only one spouse creates the majority of income and then there is a filing status' change in 2020.  The additional issue is that if you do it wrong, I believe the IRS can penalize you from filing for these credits in the future.  Just a thought or two.

[DianeW777]

The earned income for 2019, if you choose to use this for the earned income tax credit (EITC), as stated previously will be the earned income that belonged to you on that return. 

IRS Publication 596 describes the earned income to use if you are filing jointly this year by combining earned income for each of you from the separate 2019 tax returns.  This is the reverse of your situation. Without explicit language in the 2020 publication, the reverse would be to use your own earned income from the previous year. 

If you meet all the qualifications to use the Head of Household status, then under the tax law you are 'considered unmarried'.  

• Guide to Filing Taxes as Head of Household - Follow the rules under "Considered Unmarried"

[frieddillpickle]

That was precisely the thought I had but was trying to get an independent view as well.  I’m sure that since the look back rule is very fresh, the uses and implications are not well documented or programmed into software to reflect the many conditions that could arise.  Thanks for your well thought out answer.