Earned income credit (EIC), or earned income tax credit (EITC), is a tax benefit for low-income families designed to help them save money each year by reducing the amount of tax they owe. If you qualify for the earned income tax credit you can reduce your taxes and increase your tax refund.
Last year, more than 27 million individuals and families received $67 billion in earned income tax credits, with an average amount of about $2,455, according to the IRS. You can't claim an earned income tax credit unless you file a federal tax return.
What Is Earned Income?
Earned income is the taxable income and wages you receive from working for someone else or running your own business. That could include running your own farm as well.
The IRS considers taxable earned income to consist of the following:
- Wages, salaries, and tips
- Union strike benefits
- Certain disability benefits received before you reach minimum retirement age
- Net earnings from self-employment
The IRS states that these examples below are not considered earned income:
- Pay received for work while in prison
- Interest and dividends
- Retirement income
- Social security
- Unemployment benefits
- Child support
What Is a Tax Credit?
A tax credit is when you subtract the tax credits you receive from the amount of tax that you owe. The IRS states that there are two types of tax credits:
- A nonrefundable tax credit means you get a refund only up to the amount you owe.
- A refundable tax credit means you get a refund, even if it's more than what you owe.
How Do I Qualify for the Earned Income Credit?
To qualify for an earned income credit claim on your tax return, you must meet all of the following criteria that the IRS has established:
- You have earned income and adjusted gross income within certain defined limits (see table below)
- You have a Social Security number that is valid for employment. The same goes for your spouse if you file a joint return.
- Your filing status cannot be married filing separately.
- You must be a U.S. citizen or resident alien all year.
- You cannot be a qualifying child of another person.
- You cannot file Form 2555 or Form 2555 EZ.
- You must have a qualifying child (see who is a qualifying child below).
- If you do not have a qualifying child, you must:
- Be older than age 25 but under 65 at the end of the year.
- Live in the United States for more than half the year.
- Not qualify as a dependent of another person.
If you do qualify for EITC, you have to file a tax return with the IRS, even if you owe no tax or are not required to file.
How Much Income Can I Make and Still Claim an Earned Income Credit?
For the 2017 tax year to be able to claim the earned income tax credit your earned income and adjusted gross income (AGI) must be more than $15,010 and less than $53,930. You can claim the refundable tax credit depending on your overall income, your tax filing status, and how many qualifying children you have. The table below shows the income limits for 2017.
|2017 Earned Income Tax Credit (For Returns Filed in 2018)|
|Filing Status||Single, head of household, or widowed||Married joint|
|Income Limit if No Children||$15,010||$20,600|
|Income Limit if 1 Child||$39,617||$45,207|
|Income Limit if 2 Children||$45,007||$50,597|
|Income Limit if 3+ Children||$48,340||$53,930|
What Is the Maximum Earned Income Credit Amounts That I Can Claim?
The maximum earned income credit amounts that you can claim will vary by your family size. Here is the maximum amount of credit for the 2017 tax year:
- $6,318 with three or more qualifying children
- $5,616 with two qualifying children
- $3,400 with one qualifying child
- $510 with no qualifying children
What Is the Investment Income Limit for the Earned Income Credit?
The investment income limit for 2017 tax returns filed is $3,450 or less for the year. Those who have more than $3,450 in investment income do not qualify to file a claim for the earned income tax credit. People whose investments that are above that $3,450 limit may not claim a tax break as much as many other families who do not have other investments.
Is the Earned Income Tax Credit Worth It?
The earned income tax credit is worth taking the time to see if you qualify because it can give you money back. The tax credit is a refundable tax credit, meaning the IRS would send you a check if your taxes due are less than the amount of the credit earned.
Many times people are unaware of tax credit like the earned income tax credit and don't get to take advantage of the reward. The IRS has reported that 20% of eligible taxpayers don't claim the earned income tax credit. If you think you qualify for the earned income tax credit the IRS will calculate the credit for you as long as you indicate on your tax return that you want them to.
Are There Other Tax Credits Available?
Yes, there are many other tax credits available to individuals and families. There are tax credits that cover families and dependents, income and savings, homeowners, healthcare, and education.
- Child and Dependent Care Credit
- Adoption Credit
- Child Tax Credit
- Credit for the Elderly or Disabled
- Saver's Credit
- Foreign Tax Credit
- Excess Social Security and RRTA Tax Withheld
- Credit for Tax on Undistributed Capital Gain
- Nonrefundable Credit for Prior Year Minimum Tax
- Credit to Holders of Tax Credit Bonds
- Mortgage Interest Credit
- Residential Energy Efficient Property Credit
- Nonbusiness Energy Property Credit
- Low-Income Housing Credit (for Owners)
- Frequently Asked Questions on Capital Gains, Losses, and Sale of Home
- Premium Tax Credit (Affordable Care Act)
- Health Coverage Tax Credit
- Lifetime Learning Credit
- American Opportunity Tax Credit