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.
Introduction
As an expert in tax credits and the U.S. tax system, I can provide you with detailed information about the earned income tax credit (EITC). I have extensive knowledge of the criteria, eligibility requirements, and calculations involved in claiming this tax benefit. I will use my expertise to guide you through the concepts discussed in the article you provided.
The Earned Income Tax Credit (EITC)
The earned income tax credit (EITC) is a valuable federal credit designed to provide tax relief to low-income to moderate-income workers and families in the United States. It is a dollar-for-dollar credit that can be claimed on your federal income tax return if you meet certain criteria.
The EITC helps reduce the taxes you owe and may even increase your refund. The credit amount you're eligible to receive depends on various factors, including your filing status, number of children, and income level.
Refundable Tax Credit
The earned income tax credit is a refundable tax credit, which means it can reduce your tax liability below zero and potentially trigger a tax refund. Even if you don't have any dependents, you may still be eligible for the credit. The credit amount is typically higher if you have qualifying children.
For example, if you owe $900 in taxes and your EITC credit amount is $600, you would only need to pay the IRS $300. If your EITC credit was $3,995 due to an additional qualifying child, you would receive a refund of $3,095 on your tax filing.
Qualifying Children and Eligibility
Families with qualifying children can benefit from larger EITC credit amounts. To be considered a qualifying child for EITC purposes, the child must be under 19 at the end of the tax year (or under 24 if they are a full-time student). However, there is no age limit for claiming the EITC credit if you have a dependent who is permanently or totally disabled.
The child can be your biological or adopted child, stepchild, foster child, sibling or step-sibling, grandchild, niece, or nephew. Additionally, the child must 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, adjusted gross income, and other requirements. The IRS has specific rules for military members and clergy that may enable them to claim the EITC.
Income and Other Requirements
In addition to meeting the filing status and income requirements, there are certain limitations for claiming the EITC. You cannot claim the EITC if you have any foreign earned income or investment income that totals more than $11,000.
To determine if you qualify for the EITC, you can use the IRS EITC assistant, which will help you check your eligibility and calculate the maximum credit amount you may receive.
Claiming the Earned Income Tax Credit
To claim the earned income tax credit on your tax filing, follow these steps:
Step 1: Fill out a Form 1040 Most tax software will guide you through filling out the necessary forms, including calculating your adjusted gross income. You can claim the EITC 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 to provide information about each child, such as their birth date and Social Security number, on Schedule EIC. Ensure that the information you provide is accurate.
Step 3: Wait for your refund The IRS is legally required to release EITC funds starting in mid-February. Therefore, you may experience a slight delay in receiving your refund, regardless of how early you submit your tax return. If the IRS denies your claim for the EITC credit, you may need to submit a Form 8862 to correct your filing and resubmit it.
Frequently Asked Questions
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Does investment income disqualify you from the earned income tax credit? Yes, investment income can disqualify you from claiming the earned income tax credit if it exceeds $11,000. Investment income includes interest, dividends, capital gains, royalties, and passive income like rental income. You can find the full eligibility requirements for claiming the EITC on the IRS website.
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How do you calculate your adjusted gross income? Calculating your adjusted gross income is an important step in determining your eligibility for the earned income tax credit. Adjusted gross income is your taxable income, which includes wages, tips, and other self-employment earnings minus any eligible deductions. The IRS provides a free tool to estimate adjusted gross income on their website.
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Can you claim earned income tax credits for the previous tax year? Yes, qualified taxpayers can file for previously unclaimed federal EITC credits for up to three previous tax years. To claim these credits, you'll need to amend your tax return for those years. The IRS website provides information on previous EIC credit amounts for specific years.
I hope this information clarifies the concepts discussed in the article you provided. If you have any further questions or need additional assistance, feel free to ask!
