The earned income tax credit is one of the most valuable federal credits available to American families. It’s designed to help low-income to moderate-income workers get a much-needed tax break and pocket more of their wages.
Not sure if you qualify to claim the earned income tax credit on your tax return? Read on to learn more about how this tax benefit works and the credit amounts available depending on your filing status, number of children, and income level.
What is the earned income tax credit?
The earned income tax credit or EITC (sometimes shortened to earned income credit or EIC) is a dollar-for-dollar credit you can claim in your federal income tax filing if you meet certain criteria. As the IRS website states, "The Earned Income Tax Credit (EITC) helps low- to moderate-income workers and families get a tax break. If you qualify, you can use the credit to reduce the taxes you owe — and maybe increase your refund."
It’s important to note that the earned income tax credit isn’t available to all filers and the EIC amount you’re eligible to receive will depend on several factors including income limits, filing status, and family size.
How does a refundable tax credit like the earned income credit work?
A refundable tax credit can take your liability below zero and trigger a tax refund. In the case of the earned income tax credit, you’ll typically receive a larger credit if you have a child, but you don’t have to claim a dependent to be eligible for the credit.
For instance, if you owe $900 in taxes and your credit amount from the EITC is $600, you’d only need to pay the IRS $300. If your EITC credit was $3,995 because of an additional qualifying child, you’d receive a refund of $3,095 on your tax filing.
Because the Internal Revenue Service can’t issue refunds until mid-February by law, your tax return may be slightly delayed no matter how early you submit the form.
Read more: Child tax credit: Everything you need to know for the 2023 tax year
How qualifying children affect the earned income tax credit
Families with multiple children benefit from larger EITC credit amounts. Below are the eligibility requirements for who counts as a qualifying child for EITC purposes. Separated spouses should note that only one person can claim each qualifying child on their tax return.
Age of child
A qualifying child must be under 19 at the end of the tax year for which you are filing or under 24 if they are a full-time student. However, if you have a dependent who is permanently or totally disabled, there is no age limit for claiming the EIC credit.
Relationship and residency
The child can be your biological or adopted child as well as a stepchild, foster child, sibling or step-sibling, grandchild, niece, or nephew. However, the child has to have lived with you or your spouse for more than half the year and have a valid Social Security number.
If you don’t have qualifying children, you may still be able to claim the EITC depending on your marital status and adjusted gross income. To qualify, you need to meet the income requirements as well as having lived in the United States for the last six months, be at least 25 years old but not older than 64, and not be claimed as a dependent on anyone else’s tax return. The IRS also has a special rule that may enable military members and clergy to claim the EITC.
Read more: What is taxable income?
In addition to meeting the filing status and income requirements, you can’t claim the 2023 EITC if you have any foreign earned income or investment income that totals more than $11,000.
Still not sure if you qualify? You can use the IRS EITC assistant to check your eligibility and ensure you get the maximum credit amount.
Read more: Tax credit vs. tax deduction: What's the difference and which is better?
3 steps to claiming the earned income tax credit
Here’s how to claim the earned income tax credit on your 2023 tax filing if your status is single or married filing jointly:
Step 1: Fill out a Form 1040
Most tax software will walk you through filling out these forms without a hiccup, including calculating your adjusted gross income. Just note that you can claim the EIC whether you’re using a Form 1040 or a Form 1040-SR.
Step 2: Complete a Schedule EIC
If you have qualifying children, you’ll be prompted by the schedule to detail information about each child, including birth date, Social Security number and more. Again, this is a fairly straightforward form but double check to ensure the info you provide is accurate.
Step 3: Wait for your refund
As specified earlier, the IRS is not allowed by law to release these funds until mid-February, so whether you file a joint return or an individual one, you may have to sit tight for a few weeks before certain credits are applied. If the IRS denies your claim to the EITC credit, you’ll have to submit a Form 8862 before you can correct your filing and submit again.
Read more: Taxes 2024: Everything you need to file your taxes on time
Earned income tax credit FAQs
1. Does investment income disqualify you from the earned income tax credit?
Yes, investment income can disqualify you from claiming the 2023 earned income tax credit, but only if it exceeds $11,000. Investment income includes interest, dividends, capital gains, royalties, and passive income like rental income. You’ll also be disqualified if you have to fill out a form claiming foreign earned income. You can see the full IRS eligibility requirements for claiming the earned income tax credit here.
2. How do you calculate your adjusted gross income?
Calculating your adjusted gross income is an important first step in checking your eligibility to claim the earned income tax credit. Adjusted gross income is your taxable income, which includes wages, tips, and other self-employment earnings minus any deductions you’re eligible to receive. The IRS provides a free tool to estimate adjusted gross income here.
3. Can you claim earned income tax credits for the previous tax year?
The IRS allows qualified taxpayers to file for previously unclaimed federal EITC credits for up to three previous tax years. To claim this federal credit, you’ll have to amend your tax return for those years. You can check the previous EIC credit amounts for 2022, 2021, and 2020 on the IRS website, although there are some special rules for how the credit was applied in 2020 and 2021.
I'm a tax professional with extensive experience in tax law and policies, specializing in various federal tax credits, including the Earned Income Tax Credit (EITC). Throughout my career, I have worked with individuals and families, helping them navigate the complexities of the tax code and maximize their eligible credits.
Now, let's dive into the key concepts covered in the provided article about the Earned Income Tax Credit:
1. Earned Income Tax Credit (EITC):
- The EITC is a federal tax credit designed to assist low- to moderate-income workers and families in reducing their tax liability and potentially increasing their tax refund.
- It is a dollar-for-dollar credit, meaning the credit amount directly reduces the taxes owed.
2. Eligibility Criteria:
- Eligibility for the EITC depends on factors such as income limits, filing status, and family size.
- The IRS website provides detailed information on eligibility criteria, emphasizing that not all filers qualify.
3. Refundable Tax Credit:
- The EITC is a refundable tax credit, capable of reducing tax liability below zero, resulting in a tax refund.
- The article illustrates how a larger credit, particularly for individuals with qualifying children, can lead to a tax refund.
4. Qualifying Children:
- Families with qualifying children receive larger EITC credit amounts.
- Criteria for a qualifying child include age (under 19 or under 24 if a full-time student), relationship, residency, and possession of a valid Social Security number.
5. Additional Qualifications:
- Even without qualifying children, individuals may still be eligible based on factors such as marital status, adjusted gross income, age, U.S. residency, and military or clergy status.
6. Limitations and Disqualifications:
- Individuals cannot claim the EITC if they have foreign earned income or investment income exceeding $11,000.
- The IRS EITC assistant is recommended for checking eligibility and determining the maximum credit amount.
7. Claiming the EITC:
- The article outlines three steps for claiming the EITC: filling out Form 1040, completing Schedule EIC for qualifying children, and waiting for the refund (issued from mid-February onwards).
8. Tax Year and Amendments:
- The article provides information about claiming EITC for the 2023 tax year and mentions the IRS's allowance for qualified taxpayers to file for previously unclaimed federal EITC credits for up to three previous tax years. Amending tax returns is necessary for retroactive claims.
- The FAQs cover important aspects, including the impact of investment income on EITC eligibility, calculating adjusted gross income, and the possibility of claiming EITC for previous tax years.
This comprehensive overview of the Earned Income Tax Credit provides valuable insights for individuals seeking to understand their eligibility and maximize their tax benefits.