What Is the Earned Income Tax Credit, and How Does It Work?
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When you file taxes every year, it's crucial to check which tax credits you may qualify for because they can decrease your bill or boost your refund. One of the most popular tax credits is the earned income tax credit, or EITC, which is intended for low- to moderate-income workers and their families.
According to the Internal Revenue Service, some 31 million workers received about $64 billion from the earned income tax credit in 2022. The average credit amount was $2,043.
Read on to learn more about EITC eligibility rules, instructions for claiming it, news and more.
What is the earned income tax credit?
Lawmakers created the EITC in the Tax Reduction Act of 1975, signed by then-President Gerald Ford, in order to help certain Americans manage the burden of Social Security taxes. It was later expanded under President Ronald Reagan in a piece of legislation he called "the best anti-poverty bill, the best pro-family measure and the best job creation program ever to come out of Congress."
These days, the EITC is centered around your earned income, which generally includes salary, wages and tips you received while working for an employer or yourself (yes, self-employment counts). Income from sources like interest, dividends, child support, unemployment and Social Security does not qualify.
Claiming the earned income credit can reduce your tax bill or increase your tax refund.
How much is the earned income tax credit?
The amount of the EITC depends on your income, tax filing status and family size (aka number of kids/relatives claimed on your tax return).
For tax year 2023, maximum EITC amounts range from $600 for people with no qualifying children to $7,430 for people with three or more qualifying children. Between those two extremes, taxpayers with one qualifying child can receive up to $3,995, and those with two qualifying children can receive up to $6,604.
For tax year 2024 — the taxes you'll likely file in spring 2025 — the maximum EITC amount will rise to $632 for taxpayers without a qualifying kid, $4,213 for taxpayers with one qualifying kid, $6,960 for those with two qualifying kids and $7,830 those with three or more qualifying kids.
Who qualifies for the earned income tax credit?
In general, to qualify for the EITC, you must have earned income under $63,398 in 2023 (more on this below). You need to have a valid Social Security number, be a citizen or resident alien and not file Form 2555 for Foreign Earned Income. You also can't have more than $11,000 in investment income.
If you don't have a qualifying child, you must be between the ages of 25 and 65, live in the U.S. at least half of the year and not be someone else's dependent.
If you're in the clergy or the military, you're separated from your spouse, or you receive disability benefits, the rules may be different for you.
To check your eligibility, try the handy EITC Assistant tool on the IRS website.
EITC income limits
For tax year 2023, if you don't claim any children (or relatives) and you're filing as single, head of household, or widowed, the maximum adjusted gross income you can have and still qualify for the EITC is $17,640. If you're married filing jointly, the limit is $24,210.
If you claim one child and you're filing as single, head of household, or widowed, the maximum AGI you can have and still qualify for the EITC is $46,560. If you're married filing jointly, the limit is $53,120.
If you claim two kids and you're filing as single, head of household, or widowed, the maximum AGI you can have and still qualify for the EITC is $52,918. If you're married filing jointly, the limit is $59,478.
If you claim three kids and you're filing as single, head of household, or widowed, the maximum AGI you can have and still qualify for the EITC is $56,838. If you're married filing jointly, the limit is $63,398.
Note that these are caps, so they don't give the whole picture. The earned income credit phases out at higher income levels. To learn more about EITC phaseout thresholds, see the IRS website.
How to claim the earned income tax credit
You have to file a federal income tax return — meaning Form 1040 — in order to claim the EITC.
If you're claiming a child, you'll need to also submit the Schedule EIC when you file taxes. It asks you to write the name(s) of your qualifying child(ren), their Social Security number, their birth year and their relationship to you. You'll also have to provide information on the Schedule EIC about how long the child(ren) lived with you, what their age is and whether they're disabled.
Most tax prep software companies will walk you through the process of claiming the earned income tax credit, usually by asking you a series of questions and determining whether you're eligible. Then the tax preparer will fill out line 27 of your 1040 and attach your Schedule EIC.
Note that you must file taxes in order to claim the EITC — even if you wouldn't normally be required to file (or you don't owe the IRS anything). Don't fret: You may qualify to file your taxes for free.
If you get confused or need assistance, contact a tax professional.
How the EITC will affect your tax refund
The EITC can decrease your tax bill or increase your tax refund. It's what's called a refundable tax credit, meaning you can receive the money in a tax refund even if your tax liability is zero.
The amount you will receive as a refund or owe to the IRS can vary widely and depends on your individual circumstances. Say you owe the IRS $3,000, but you qualify for a $2,000 earned income credit. The sum you owe the IRS is then reduced to $1,000.
Here's another example. Say you owe the IRS $1,000, but you qualify for a $2,000 earned income tax credit. Your tax refund is then increased by $1,000.
Finally, if you owe the IRS nothing, but you qualify for a $2,000 earned income credit, you can receive a $2,000 tax refund.
Fair warning: In addition to changing how much money you receive, claiming the EITC may slightly delay your tax refund. Upon getting the money, though, research shows most EITC recipients spend their tax refunds on necessities, including food, housing and clothing.
When will the IRS release EITC refunds for 2023?
Although it typically starts accepting returns in January, the IRS can't legally issue tax refunds that include EITC or Additional Child Tax Credit funds before mid-February. So if you file taxes early and claim the EITC, you can expect your refund to take a bit longer.
The good news is the IRS is usually pretty quick with refunds, sending over 90% of them in less than 21 days. To speed up the process, make sure your tax return has no errors, file online and choose direct deposit as your delivery method. You can track your tax refund using the IRS's Where's My Refund tool.
In recent years, the IRS has begun issuing tax refunds for returns that included the EITC around Feb. 27 or Feb. 28.
Taxpayers who encounter trouble with their taxes may want to consider contacting tax relief companies for help.
State EITCs
This article is focused on the federal credit, but 31 states (plus Washington, D.C.) also offer their own versions of the EITC for 2023. Most state EITC payouts are structured as percentages of the federal tax credit. Not all are refundable.
State EITC percentages are highest in places like South Carolina, which offers a nonrefundable credit that's 125% of the federal EITC, and D.C., which offers a refundable credit worth 70% of the federal EITC (100% for workers without children). They're lowest in places like Montana, which offers a refundable credit worth just 3% of the federal EITC.
According to the Urban Institute, a think tank, many states have been reworking their policies so as to support taxpayers who don't qualify for the federal credit (think: undocumented workers, young people and workers without children).
Latest earned income tax credit news
Investigative reports in recent years found that filers who claimed the EITC were more likely to be audited than those who didn't. These high EITC audit rates are often linked to the fact that many taxpayers erroneously claim the credit and that it's easier to audit low-income Americans than rich ones.
Furthermore, a 2023 study that confirmed the IRS disproportionately audits Black taxpayers tied the disparity to the EITC.
In a September letter, IRS Commissioner Danny Werfel vowed to "substantially" reduce the number of correspondence (mail) audits focused on credits like the EITC in 2024. In addition to "focusing on helping taxpayers submit accurate filings upfront," he said the agency intends to change its case selection process in an effort to reduce audit rate disparities. This falls in line with the IRS's plan to use billions in funding from the Inflation Reduction Act to crack down on wealthy tax cheats.
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