Many lower-wage workers who are raising families bank on receiving a healthy, four-figure tax refund, likely their biggest single check of the year, when they claim the Earned Income Tax Credit on their income tax returns.

But what happens if you ended up being out of work much of 2020 during the pandemic? Are you suddenly shut out of the earned income credit, which as the name implies requires that you work and earn money? Will you now see hundreds or even thousands of dollars disappear from your tax refund?

Millions of struggling families would have faced just that sort of financial nightmare this spring if not for an 11th-hour action by Congress late in December.

The latest COVID-19 economic relief package, signed by President Donald Trump on Dec. 27, created a special break for obtaining the earned income tax credit after the economic upheaval in 2020.

But the deal isn’t automatic. Tax filers and the people who help them with their taxes now must be aware of the new option and take time to review 2019 earnings, as well as earnings in 2020, to calculate the credit. And they cannot simply assume that they won’t qualify for earned income tax credit.

The payout isn’t immediate. Tax filers who claim the credit face required delays by law even if they file as soon as the tax season starts.

The IRS noted online this year that the EITC refund can be expected “as soon as the first week of March if you file your return online, you choose to get your refund by direct deposit and we found no issues with your return.”

What’s new for 2020 tax returns?

This tax season, tax filers will be able to choose whether they want to use either their 2019 or 2020 earned income to calculate the Earned Income Tax Credit on their 2020 income tax returns, thanks to a one-time lookback provision.

The lookback will also help financially challenged people qualify for the refundable portion of the Child Tax Credit, which is allowed even if you do not owe any tax.

You’d pick the year that would generate a bigger tax break.

“This lookback provision may benefit many taxpayers that became unemployed or under-employed during 2020,” said Matt Hetherwick, the director of individual tax Programs for the Accounting Aid Society in Detroit.

“As a result, we recommend that taxpayers be prepared to provide a copy of their 2019 tax return along with all of their current year tax documents to allow for the most accurate 2020 tax return,” Hetherwick said.

Many who qualify for the credits count on a sizable tax refund to cover their bills, pay down their debt and buy important bigger ticket items for the family.

Detroiters, for example, claimed an average Earned Income Tax Credit of $3,430 in 2019, including both the federal earned income tax credit and the state credit.

“The new lookback provision is essential during these unprecedented times to ensure that hardworking families who have been hit hard by the crisis can still access their EITC credit,” said Megan Thibos, director of economic mobility initiatives, at the United Way for southeastern Michigan.

“That money helps them become more stable, especially during times like what we are currently experiencing.”

Households that faced the most risk of losing money without the lookback provision include those who were unemployed for much of 2020, expected to make up to $25,000 last year and have children at home, according to Boston-based Commonwealth, a nonprofit focused on building financial security.

Many people of color and single women who raise families and work low paying jobs, in particular, risked losing as much as 80% of their tax refunds because unemployment last year would have reduced their tax credits, such as the Earned Income Credit and the refundable Child Tax Credit, according to the Commonwealth’s data.

“Earned income was a necessary ingredient and a lot of us didn’t have it last year,” said Timothy Flacke, co-founder and executive director for Commonwealth.

The tax credits, he said, really never anticipated the rapid, widespread unemployment across the country that took place in 2020 as policymakers closed down much of the economy to stem the spread of COVID-19.

What do you have to do to get the credit?

You do have to file a federal return, even if no tax is owed and even if there is no requirement to file a federal return.

Each year, billions of dollars in earned income credit refunds nationwide go unclaimed because many who qualify don’t file a tax return.

If you were out of work in 2020, you might even think you shouldn’t bother to file a tax return because you’d lose out on the earned income credit anyway.

But that would be a huge tax mistake, given the important change for struggling households that was packed into the $900 billion stimulus package passed late last year.

Flacke said it’s essential that people know that new options are available for 2020 tax returns.

There’s a risk, he said, that do-it-yourselfers might overlook the change. If they don’t file, they’d miss out on the earned income credit.

And many haven’t heard about the lookback option yet. Some tax sections at IRS.gov as of Jan. 12 did not even reflect the new lookback provision but most likely would later.

If you collected unemployment benefits in 2020, for example, tapping into the earned income credit could help offset other tax obligations.

Unemployment compensation is taxable income. Since many did not have taxes already withheld from jobless benefits, they could face a tax bill. A generous payout for the earned income credit could offset some taxes that will be owed and even contribute to a tax refund.

Cari Weston, director for tax practice and ethics at the American Institute of CPAs, said one positive is that many people who qualify for the EITC also qualify for free tax preparation programs.

In Michigan, for example, tax filers who qualify can turn to groups, such as the Accounting Aid Society and the Wayne Metropolitan Community Action Agency, for free tax help that can address the new change. The Internal Revenue Service website — IRS. gov — also lists Volunteer Income Tax Assistance and the Tax Counseling for the Elderly tax help programs.

But Weston’s also concerned that many times people in a lower income area turn to one neighbor who buys tax software and then does a long list of returns. If that person isn’t aware of the changes — and doesn’t look at earnings in 2019 as an option — then many people could lose out on thousands of dollars.

“The software is only as good as the information you put into it,” Weston said.

Flacke also warns that some online EITC or tax refund calculators might not immediately give the right picture, given that the special lookback provision only was approved in late December.

How much money are we talking about here?

A complex calculation is involved to determine how much money people receive. But generally, bigger dollar amounts go to larger families and low-wage earners with steady employment.

Think of a bell curve. Someone who is making minimal money builds toward a larger credit by working more hours and earning more money but then reaches a peak and the credit will start to go down on the other side and vanish once you make too much money, Weston said.

If you make too much money, you lose the credit. But if you make too little, you don’t receive much of a credit.

The credit is refundable, meaning you can still qualify if you’d typically not be required to pay any income taxes. Qualifying taxpayers can receive tax refunds even if they didn’t pay any income taxes during the year.

The earned income credit itself will vary. The maximum credit is $6,660 for those filing a 2020 tax return but only applies to tax filers who have three or more qualifying children.

By contrast, the maximum credit is $538 for someone who has a limited earned income but has no children.

In between, the maximum credit is $3,584 for workers who qualify with one child and $5,920 for those with two children.

The credit amounts are slightly higher than what was available on 2019 tax returns when the top amount possible was $6,557 for those with three or more children.

Wages from all sorts of jobs do qualify, including jobs where federal income taxes are withheld on a W-2 and gig work, such as freelancing or driving a car for deliveries, where taxes might not be withheld.

Earned income does not include such things as unemployment benefits, pensions, Social Security, child support or pay received while an inmate for work done in prison.

Who qualifies?

The earned income credit, initially enacted in 1975 as a temporary break, was designed to offset rising payroll taxes and other costs for low-wage workers.

The maximum adjusted gross income allowed to obtain the earned income credit is up to $15,820 for those who are single with no children.

The highest cutoff is $56,844 for married couples filing a joint return with three or more qualifying children.

“Once you hit that number, you’re not eligible for this credit at all,” Weston said.

Again, there is a range. For example, the cutoff is an adjusted gross income of $41,756 for a single person, widowed person or head of household with one child.

As we know, 2020 turned out essentially to be a disaster zone. And Flacke noted that the new tax solution that takes into account income from the year before the disaster hit is similar to other relief that has been offered when a natural disaster, such as a hurricane, devastates a specific area.

Over the years, some did not file for the earned income credit because they didn’t realize it applied to them.

Maybe an employee received a W-2 but didn’t have any taxes withheld and they are not required to file taxes because their incomes are so low. They lost out because they didn’t understand the EITC and did not realize how valuable a refundable credit can be.

This year, there’s yet another twist with the potential look back to 2019. Knowing about that option could put far more money in people’s pockets.

Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at stompor@freepress.com.