What Is the Earned Income Tax Credit (EITC)?

The earned income tax credit (EITC) is a tax break available to low- and moderate-income wage🐓 earners.

It is a refundable 澳洲幸运5官方开奖结果体彩网:tax credit that reduces the amount of taxes owed on a dollar-for-dollar basis. Taxpayers are even eligible for refunds of the taxes that have been deducted from their paychecks if their tax credit exceeds their tax liability for the year.

Undersꦍtanding the Earned Income Tax Credit (EITC)

The earned income tax credit (EITC), also called the earned income credit (EIC), was intended as a work bonus plan to increase the real spending power of low-income workers and help offset the effect of Social Security taxes. It continues💝 to be viewed as an anti-poverty tax benef🎃it.

The EITC is available only to taxpayers with low or moderate earnings, whether or not they have qualifying dependents. To claim the credit, an individual taxpayer, or a married couple filing jointly must be at least 19 years old and must live in the United States for more than half of the tax year. 

The credit percentage, earnings cap, and credit amount vary according to a 🎃taxpayer’s filing st﷽atus and number of dependents. Qualifying dependents can include children under age 19, students under age 24, or family members with a disability.

These factors also determine the income phaseout range over which the credit diminishes to zero. No credit is allowed above the ceiling for the phaseout range.

How the Credit Works

The credit reduces the amount of tax owed on a dollar-for-dollar basis. If the amount of the EITC is greater than the amount of tax owed by a taxpayer, the taxpayer may be eligible for a refund of taxes already paid by payroll deduction during the year.

🅷The EITC is one of the most important tax credits available to individual taxpayer꧑s. The taxpayer must be a U.S. citizen or a resident alien for the entire year and have a valid Social Security number by the tax return’s due date.

The amount of credit that can be claimed on a tax return depends on the taxpayer’s annual earned income for the tax year, 澳洲幸运5官方开奖结果体彩网:filing status, and number of qualified dependents.

Example of the EITC

A refundable tax credit reduces the value of a taxpayer’s liability, dollar for dollar, and results in a refund if the liability is reduced below zero. That makes it more valuable than a tax deduction, which only reduces the filer's total taxable income.

For example, an individual who has a tax bill of $2,900 and can claim a $529 credit will owe $2,371 ($2,900 - $529 = $2,371).

That lower amount is the total that the taxpayer must pay to the Internal Revenue Service (IRS) for the year. If a taxpayer has a total tax liability of $1,000 and a credit o💎f $1,500, then🌱 the taxpayer should be entitled to a refund of $500. 

Qualifying for the EITC

To qualify for the EITC, a taxpayer’s earned income and 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI) must be below certain income limits. The limits on the income levelꦕ, credit amount, and investment incom🗹e for a single or married taxpayer vary depending on the number of qualifying dependents in the household.

The limits for the 2024 tax year appear below.

The IRS has posted an EITC calculator. The EITC calculator helps determine eligibility for the credit and provides an estimate of the credit amount. To use the calculator, you can input information about your income, qualifying children or relatives, filing status, and relevant financial documents such as W-2s and 1099s. You'll also need to include details about taxes withheld or money received, as well as any relevant expenses or income adjustments. Note that the calculator should be used for estimation purposes only and does not implicitly mean you will get the credit.

*Taxpayers who claim the EITC under 澳洲幸运5官方开奖结果体彩网:married filing separately must meet the eligibility requirements under the special rule in the 澳洲幸运5官方开奖结果体彩网:American Rescue Plan Act (ARPA) of 2021.

Taxpayers who are married filing separately can qualify for this credit provided that they meet the eligibility requirements under the ARPA. The tax law provides special EITC rules for clergy and members of the military stationed abroad, and specific rules coordinating the credit with the tax laws applicable in Puerto Rico, Guam, and American Samoa.

How to Claim the EITC

If you can♚ claim the EITC), be aware that your refund may be delayed as the IRS cannot issue EITC and Additional Child Tax Credit (ACTC) refunds before mid-February. Most EITC and ACTC-related refunds hit taxpayer bank accounts by March 1, assuming ಌthere are no other issues with their tax returns.

You can also track your IRS tax refund using the online tool or IRS2Go mobile app.

When filing, ensure you use the correct forms—either Form 1040 or Form 1040 SR—and include the Schedule EIC if you're claiming the EITC with a qualifying child. If you qualify for the EITC in prior years, you have up to three years from the due date of your tax return to file and claim a refund.

Keep in mind that there are specific deadlines for each year. To file for prior years, use Form 1040 and the Schedule EIC if applicable, and if you previously filed a return but didn't claim the EITC when eligible, you can file an amended return.

The Bottom Line

The EIT🧔C is a federal tax credit designed to provide financial assistance to low-to-moderate-income working individuals and families. It reduces the amount of taxes owed and can result in a 🐈refund for eligible taxpayers.

The credit amount depends on income, fil💦ing status, and the number of qualifying children.