Earned Income Credit and Earned Income Tax Credit
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What Is the Earned Income Credit (EIC)?
Also known as the earned income tax credit (EITC), the earned income credit (EIC) is a tax break available to US workers and self-employed individuals whose incomes are low or moderate. In addition to the federal credit, several US states and local governments, including the District of Columbia, Guam, and Puerto Rico, offer similar EITC programs.
EITC Benefits for Individuals and Families
According to the Center on Budget and Policy Priorities, the EITC helps reduce poverty. Millions of working households, especially those with children, rely on this and similar tax credits to supplement lower earnings each year. In turn, it’s also a financial uplift for the economy.
When employees claim EIC on their individual returns, it reduces the amount of taxes they owe and may result in a larger refund. As of December 2022, 31 million workers and families benefited from this program and about $2,043 was the average amount received nationwide.
HR managers in community organizations, schools, and businesses can use EITC Awareness Day to help ensure people know about this valuable program and how to determine if they’re eligible. The IRS has an online toolkit with resources that make it easy for organizations to spread the word about this program and encourage people to take advantage of it.
Who Qualifies for Earned Income Credit?
Federal EIC is available for workers with and without dependents, but they must meet certain criteria to qualify. IRS Publication 596, Earned Income Credit (EIC) states that all workers must meet the following seven benchmarks to claim this tax credit:
- Your income is less than the adjusted gross income (AGI) limit.
- You have a valid Social Security number (SSN).
- You meet special rules for separated spouses.
- You were a US citizen or resident alien all year long.
- You cannot file Form 2555, Foreign Earned Income.
- Your investment income is less than the limit.
- You earned money that year (e.g., wages, tips, net self-employment earnings).
Next, eligible workers must also fulfill other criteria to apply for this tax credit. Rules for workers with one or more qualifying children include:
- The child meets the relationship, age, residency, and joint return tests.
- The child isn’t being documented by another taxpayer claiming EIC.
- The worker isn’t a qualifying child of another taxpayer.
Rules for workers without qualifying children include:
- You meet the age requirements.
- You’re not a dependent of another taxpayer.
- You’re not a qualifying child of another taxpayer.
- You’ve lived in the US for more than half the year.
Special rules apply to the US military, clergy, as well as people and their relatives with disabilities. The IRS offers a handy EITC calculator online that people can use to determine their eligibility status.
How to Claim EIC on Your Tax Return
After determining they qualify, employees must complete specific IRS forms to claim this tax credit on their return. Depending on their situation, they’ll need to submit the following document(s):
- Form 1040, US Individual Income Tax Return
Form 1040-SR, US Tax Return for Seniors
Schedule EIC (for people with children)
How Much Is the Earned Income Credit for 2023?
For 2023, the IRS maximums issued are between $600 and $7,430 per eligible person in earned income credit. The amount a taxpayer receives depends on their filing status, income, and number of dependants (if applicable). Also, they must have $11,000 or less in investment income to qualify.
The chart below shows how the 2023 EIC correlates to different individuals and families:
Adjusted Gross Income (AGI) |
No. of Children |
Maximum EITC |
|---|---|---|
|
Filing as Single: $17,640 Married, Filing Jointly: $24,210 |
0 | $600 |
|
Filing as Single: $46,560 Married, Filing Jointly: $53,120 |
1 | $3,995 |
|
Filing as Single: $52,918 Married, Filing Jointly: $59,478 |
2 | $6,604 |
|
Filing as Single: $56,838 Married, Filing Jointly: $63,698 |
3 | $7,430 |
Can I Claim EITC for Past Years?
If you haven’t claimed EIC in previous years and think you may have been eligible, there might still be time for you to claim this tax credit. You have three years from the due date of your tax return to file and claim earned income credit. For example, you’ll have until 4/18/2025 to claim EIC for the 2021 tax year.
For more information, see Publication 596, Earned Income Credit (EIC).
What Is Earned Income Tax Credit and How Does It Work?
The earned income tax credit was designed to help reduce the tax burden of low-income individuals and families, especially those with children. As a refundable tax credit, the EITC can either lower the amount of federal taxes owed or, if the taxpayer owes no taxes, it can be received as a refund. Taxpayers only earn the full EITC amount if their income is within a specific threshold.
The tax credit varies depending on income, filing status, and the number of children. The earned income credit also has a phase-in and phase-out tax schedule. This means individuals qualify for a percentage of the tax credit up to an inflation-adjusted threshold each year. The percentage phase-in amount varies based on the number of children the taxpayer has. It plateaus where individuals in a designated income range earn the maximum credit amount and then phases back out for higher income earners.
Here are some examples of the EITC in action:
- If Jessica has one child and earns between $10,980–$20,130, she can receive the full EITC for one child of $3,733.
- If Jessica earns less than $10,980, she qualifies for a partial earned income tax credit based on how much she makes.
- If Steven and Jessica have three children and earn between $15,410–$26,260, they qualify for the full EITC for three children ($6,935).
- If Steven and Jessica earn more than $26,260, they qualify for a partial tax credit and can receive a percentage of the tax credit.
- This percentage decreases as income rises from $26,260 to the eligibility limit of $59,187.
- If the couple earns more than $59,187, they do not qualify for the EITC.
What Qualifies You For Earned Income Credit?
To qualify for the EITC, taxpayers need to do the following:
- Earn income in the taxable year
- Earn less than the specified income threshold ($57,414 in the 2022 taxable year)
- Have investment income below $10,300 in the tax year
- Have qualifying children
Other qualifications for the EITC include a valid social security number and U.S. citizenship or resident alien status. Military members, clergy, former foster children, taxpayers with no children, and taxpayers who support relatives with disabilities may also qualify for the earned income credit with special considerations.
Earned Income
The tax credit was designed to support and promote working individuals and families. To be eligible for the EITC, employees must have earned money from taxable pay (wages, tips, or commissions), disability payments, or non-taxable combat pay (if elected).
Income Threshold
The taxable income threshold varies each year, typically increasing due to inflation. It also varies based on whether an employee files taxes individually or jointly with their spouse. Taxpayers can figure out their earned income credit by doing simple calculations and following the tables and guidelines from the IRS. Here is the income table for 2022 based on the thresholds from the IRS to calculate who qualifies for the EITC:
| Children or Relatives Claimed | Filing as Single, Head of Household, or Widowed Max Income Threshold | Filing as Married Filing Jointly Max Income Threshold | Maximum Earned Income Tax Credit |
|---|---|---|---|
| 0 | $16,480 | $22,610 | $560 |
| 1 | $43,492 | $49,622 | $3,733 |
| 2 | $49,399 | $55,529 | $6,164 |
| 3 or more | $53,057 | $59,187 | $6,935 |
Qualifying Children
Related dependent, adopted, or foster children must be living with the taxpayer, under age 19, or under age 24 if a full-time student for five months of the year. A permanently and totally disabled child qualifies at any age.
Full-time students must be enrolled in full-time classes at their school or working in jobs as part of their school’s official program.
No Children at Home
Individuals who don’t have children at home can still qualify for the earned income credit. They need to earn income below 22,615 dollars for the taxable year if filing jointly, or 16,480 dollars if filing individually.
Individuals receiving disability income can also qualify.
What Has Been the Impact of the EITC?
The earned income credit has a significant impact on the economy. In 2021, the average earned income credit was 2,411 dollars. Combined with other federal tax credits, the IRS estimates the EITC helped raise 9 million people out of poverty. However, an estimated 20 percent of eligible taxpayers don’t claim the credit.