Should I use my 2019 Earned Income to recalculate my Child Tax Credit if I made more income in 2020? This "review" question confuses me.

[rsnyder0621]

You may benefit from recalculating your Child Tax Credit using your 2019 earned income if it is greater than your 2020 earned income.
Right now your refund is $xxxx.
Do you want to use your 2019 income to calculate this credit instead?
Should this be "NO" since my income in 2020 was higher? Doesn't make sense that the Higher number would help...

[Bsch4477]

If your earned income was higher in 2020 you cannot use the 2019 income. 

[JohnW152]

Not necessarily.

Take your 2019 earned income, and your 2020 earned income, and find the EIC amount based on each of those amounts in the Earned Income Credit (EIC) Table beginning on page 48 of the 2020 Instructions for Forms 1040 and 1040-SR. 

Whichever produces the higher EIC amount is the one you should use.

Please note that, although you have the choice of using your earned income from either 2019 or 2020 for your 2020 Earned Income Credit calculation, that's only one part of the computation.

The Earned Income Credit is computed by comparing two amounts in the IRS's EIC table -- an amount based on earned income, and an amount based on Adjusted Gross Income (AGI).  Whichever of these two amounts from in the table yields the smaller EIC amount will be used.

So while you might use your earned income from 2019, your AGI from 2020 still has to be used in making the computation.

Please see Worksheet A -- 2020 EIC -- Line 27 in the link above to see how the computation works.

[lameri]

I am at the screen where I am given the option to use 2019's or 2020's earned income. Two questions:

1) Does the system go back to the other one if the deduction turns out to be worse?

2) How does the earned income affect the credit (in general terms)?

Thanks!

[NCperson]

TT will use what ever gives you the biggest benefit, 

EIC is complicated.

1) Starting within an income of zero, as your income goes up, the EIC goes up as well

2) Then at a certain point EIC plateaus even though you income may be rising

3) Then at a certain point EIC begins to go down,  as your income continues to rise, until EIC goes away. 

So depending where your 2020 income falls on that continuum and where your 2019 income falls on that continuum, using your 2019 income could be better, but is may not be.  Like I stated, EIC is complicated   

[Hal_Al]

See the EIC curve (graph) at:

http://www.taxpolicycenter.org/briefing-book/key-elements/family/eitc.cfm

The earned income credit is first calculated (actually looked up in a table) on your earned income then it is calculated on your total income (AGI). You get the lesser of the two calculated EIC numbers. See the 2019 EIC table at:

https://apps.irs.gov/app/vita/content/globalmedia/earned_income_credit_table_1040i.pdf