The Earned Income Tax Credit (EITC) is a tax break designed to help those with low to moderate incomes. Its especially intended to benefit working parents who fall within those income ranges.
The EITC is not applied to your tax return automatically. Instead, you must take the appropriate steps to claim it on your tax return yourself.
Taxpayers have up to three years to claim the EITC. So if you're just learning about it and think you might have qualified in previous years, there may still be time to claim it for a previous year. In this article, we’ll go over what the Earned Income Tax Credit is and how to qualify for it.
What Is The Earned Income Tax Credit?
Unlike many other tax credits, the EITC is a refundable tax credit. That means that you always receive the full value of your credit, even if it exceeds your tax liability. If your income tax bill is lower than the EITC dollar amount, you will get a refund from the IRS.
For example, imagine that someone qualifies for an Earned Income Tax Credit amount of $6,604 and owed $4,000 in income taxes. With a non-refundable tax credit, the max benefit would be $4,000, since non-refundable credits aren't able to bring a taxpayer's tax liability under $0. But as a refundable credit, the EITC would be able to provide the full $6,604 benefit by sending the taxpayer a refund check for $2,604.
The EITC is a federal tax credit only. This means it will not apply to state, city, or country taxes. In some cases, it may also not cover Social Security taxes. It is only meant to reduce federal income taxes.
Related: Tax Credits Vs. Tax Deductions
How Much Can You Receive?
The EITC ranges from $600 to $7,430 for the 2023 tax year (which is what you file in early 2024). The figure varies with income, filing status, and if you have qualifying children or not.
Using the table below, you can determine how much your EITC might be based on your AGI.
Children | Max EITC | Earnings single or head of household | Earnings filing |
|---|---|---|---|
0 | $600 | $17,640 | $24,210 |
1 | $3,995 | $46,560 | $53,120 |
2 | $6,604 | $52,918 | $59,478 |
3 or more | $7,430 | $56,838 | $63,398 |
As an example, if your income was $40,000, you filed single and have one qualified child, your maximum EITC would be $3,995.
Keep in mind that some of the income levels above are only slightly above the poverty levels listed by the Department of Health. For one person, the poverty level is an income of $14,580. That’s just below the $17,640 maximum income for a single filer with no children.
Related: When To Expect My Tax Refund
Who Qualifies For The Earned Income Tax Credit?
The Earned Income Tax Credit is available for both employed and self-employed people. Below is a list of criteria that one must meet to be eligible for the ETIC.
- Must have earned income. This is income from some form of employment (including self-employment). Dividends or investment income, pension, and unemployment benefits are not eligible forms of income.
- Valid Social Security number issued for yourself and any participating spouse or children.
- Investment income of $3,650 or less.
- Filing status of married filing jointly, head of household, qualifying widow or widower, or single.
It isn’t necessary to have children for the ETIC. But there are certain criteria for claiming the Earned Income Tax Credit without qualifying children. These requirements also apply to any spouse that you are filing a joint return with.
- You meet all of the EITC basic rules, AND
- You have your main home in the United States for more than half of the tax year, AND
- You cannot be claimed as a dependent or qualifying child on anyone else's return, AND
- You are at least age 25 but under age 65 years old at the end of the tax year, usually Dec. 31.
If you are claiming the EITC with a child, either as single or with your spouse filing a joint return, the child must meet all of the qualifying rules. Since qualifying a child is more involved, it’s best to use the IRS EITC Assistant.
Who's Ineligible?
In addition to the income levels listed above, other criteria might make someone ineligible for the EITC:
- Filing married separately
- Being claimed as a dependent by someone else
- Filing Form 2555 (Foreign Earned Income) or Form 2555-EZ (Foreign Earned Income Exclusion).
Final Thoughts
The Earned Income Tax Credit can be a great financial boost for those with low to moderate incomes. Yes, there are a number of qualifying criteria. But most people who meet the income thresholds should qualify.
Keep in mind that you must actively take steps to claim the EITC on your tax return since it is not automatically claimed for you. But even if you forgot (or didn't even know it existed), you can go back up to three years to claim the EITC.
Once you're ready to claim your credit, make sure that you don't overpay for tax filing services. Check out our favorite tax software to find affordable and capable options.
Related Articles:
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared toward anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications, including the New York Times, Wall Street Journal, Washington Post, ABC, NBC, Today, and more. He is also a regular contributor to Forbes.
Editor: Colin Graves
