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Earned Income Tax Credit: What it is and how to know if you qualify as a taxpayer

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As far as tax credits go, you may not know the Earned Income Tax Credit on a by-name basis, but it’s a good one to get to know. Why? For taxpayers, this credit is highly valuable and is often missed — allowing you to keep more of your hard-earned money.

What is the Earned Income Tax Credit?

couple figuring out the earned income tax credit

In a nutshell, the Earned Income Tax Credit (EITC or EIC) is a refundable tax credit created to benefit low-income workers and their families. The “refundable” designation is important here.  That means you can receive money back even if your tax liability is zero.

The criteria for claiming this valuable credit are complex and getting the details right are important, as it can help you save money.

To help you understand the ins and outs, we’ve outlined details about the Earned Income Tax Credit requirements below so taxpayers like you can see if you qualify. Read on as we tackle the technicalities – as there are many!

How much is the Earned Income Tax Credit worth?

Taking the time to check the Earned Income Credit eligibility can pay off, as the tax benefit can be worth up to $7,430 (for 2023) depending on your filing status, income, and number of qualifying children.

The Earned Income Credit income limits

One of the most important parameters of figuring out who qualifies for the EIC is income level. So, if your income is higher than the limits, you can’t claim the credit.

As a starter, use this table to find the maximum Adjusted Gross Income (AGI), credit amounts for tax year 2023.

AGI Limits

Child or relatives claimedFiling status: Single, Head of Household, or Qualifying Surviving SpouseFiling as Married Filing Jointly
ZERO$17,640$24,210
One$46,560$53,120
Two$52,918$59,478
Three$56,838$63,398

Investment income limits

“But what if I have a mix of earned income and investment income?” Good question! If you have both earned and investment income, you might still be eligible for the Earned Income Credit, but you need to pay attention to the investment income limit. In fact, if your investment income exceeds $11,000 (for tax year 2023), you won’t qualify for the EITC benefit.

 Investment income includes:

  • Interest
  • Dividends
  • Capital gains
  • Royalties
  • Rental income
  • Passive activity income

Maximum credit amounts

Once you know you’re under the income limits, you can determine how much of the EITC you can receive. The maximum EITC will be based on the number of qualifying children you have:

  • No qualifying children: $600
  • 1 qualifying child: $3,995
  • 2 qualifying children: $6,604
  • 3 or more qualifying children: $7,430

What is earned income?

As the name implies, you need to earn income to meet the qualifications for the Earned Income Credit. Unearned income doesn’t qualify. Check out the lists below to understand what earned income is and isn’t. Earned income includes:

  • Net earnings from self-employment
  • Non-taxable combat pay you elect to include in income
  • Salary, tips, wages, and other taxable employee pay
  • Union strike and lockout benefits
  • Some retirement disability benefits

If you’re in the military with nontaxable combat pay, you can elect to include the combat pay in earned income to calculate the EIC. Examples of income that doesn’t qualify include passive income, or income you aren’t actively generating on your own, such as:

  • Interest and dividends
  • Alimony
  • Child support
  • Pay while incarcerated
  • Retirement income
  • Social Security payments, pensions, and annuities
  • Unemployment benefits

Earned Income Credit eligibility

We’ve covered amounts of income and what’s considered earned income, but there’s still more criteria to determine Earned Income Credit eligibility.  Yes, it’s a lot – hang in there!

Let’s jump into who qualifies for the EIC – beyond those who fit the income criteria. Earned Income Credit eligibility is as follows:

  • You and your spouse (if tax filing jointly) must have valid Social Security numbers (SSN) by the due date of your tax return (including extensions)
  • You generally can’t file as Married Filing Separately (MFS), or must meet specific requirements if you are separated from your spouse and not filing a joint return
  • You must be a U.S. citizen or resident alien all year
  • You can’t file a Form 2555 (relating to foreign earned income)

Earned Income Tax Credit eligibility if you have no children

Often, people believe that if they don’t have children, they don’t fit into the Earned Income Tax eligibility rules. But that’s not the case.  You can claim the credit, but there are a few more criteria to meet.

If you don’t have qualifying children, you must:

  • Not be a dependent of another taxpayer
  • Not be a qualifying child of another person
  • Live in the United States for more than half the year
  • Meet age requirements (at least age 25 but under age 65 at the end of the year)

Earned Income Credit qualifications with one or more children

Earned Income Credit qualifications with one or more children are as follows:

Age —

Your child is under the age of 19 or a full-time student under the age of 24 and is younger than you (or your spouse, if filing jointly). (If your child is permanently and totally disabled, the age requirements don’t apply.)

Relationship —

A qualifying child must be:

  • A son/daughter, stepson/stepdaughter, or eligible foster child
  • A brother/sister, stepbrother/stepsister, half-brother/half-sister
  • A descendant of any of those people (for example, a grandchild, niece or nephew)

These rules also apply to relationships:

  • Relationships established by marriage aren’t ended by death or divorce
  • An adopted child is treated as your own child. An adopted child is any child placed with you for legal adoption

Residency —

The child must live with you in the same main home within the U.S. for more than half of the year. This doesn’t include Puerto Rico or other U.S. territories or possessions. Exceptions are allowed for:

  • Temporary absences
  • Children born or deceased during the year (if your home was the child’s home for over half of the time they were alive)
  • Kidnapped children
  • Those who are on extended active duty outside of the United States; (They can be treated as having a main home within the United States. Extended active duty equals more than 90 days or for an indefinite period)

Social security number —

A qualifying child must have a valid SSN issued on or before the due date of the tax return (including extensions).

Qualifying child and dependency requirement —

Your qualifying child can’t be used by more than one person to claim the EIC. You don’t have to claim the child as a dependent. However, a married child is only a qualifying child for EIC purposes if you could claim the child as a dependent.

Marital status —

A qualifying child must not file a joint return unless both conditions are true:

  • They only file a return to claim a refund of taxes withheld or estimated taxes paid
  • No tax liability would exist for either spouse if separate returns were filed

EIC for separated spouses —

Separated spouses, those with filing status of Married Filing Separately, can claim the EITC if they live with a qualifying child for more than half the year, and either:

  • Don’t have the same principal place of abode as their spouse for the last six months of the year, OR
  • Have a decree, instrument, or agreement (i.e., other than a divorce decree) and don’t live with their spouse at the end of the year.

Social Security number (SSN) requirement —

You can now claim the “childless” EIC even if your dependent doesn’t have a valid Social Security number. Previously, if you had a child who didn’t have an SSN, you couldn’t claim any EIC.

Filing status —

You, generally, can’t be Married Filing Separately and claim the EIC. There is an exception for separated spouses, however.

EIC FAQs

Undoubtedly, there’s a fair share of Earned Income Tax Credit requirements to bear in mind. To understand your own eligibility, we’ve listed some frequently asked questions here:

If I didn’t claim the EIC last year, can I amend my return and claim it?

To claim the Earned Income Credit for last year, you must amend your return by filing Form 1040-X by the later of these dates:

  • Three years from the due date of your original return
  • Two years from the date you paid the tax

Note that if you now have a valid SSN but didn’t claim the EIC last year because you or your child didn’t have a valid SSN by the due date of the return, you can’t amend your return to claim the EIC for earlier years.

If I claim the EIC, could I experience refund delays?

If you claim the EIC, your tax refund may not be sent until mid-February. This is due to fraud and security measures put in place by the Path Act. The Internal Revenue Service (IRS) still expects to issue most refunds in less than 21 days.

What happens if I have an EIC error?

As mentioned, claiming the EIC is complicated – and making an error can have consequences.  First, an error when filling out the EIC portion of your federal tax return could delay your tax refund.

Additionally, an error could lead to you not receiving the credit at all and jeopardize your ability to claim the credit in the future. If the IRS denies your whole claim you:

  • Must pay back EIC amount you’ve been paid in error, plus interest
  • Need to file Form 8862, Information to Claim Certain Credits After Disallowance, before you can reclaim the credit if the credit was denied or reduced for any reason other than a math or clerical error

If I’m separated from my spouse, can I file as Head of Household to get the EIC?

You can file as Head of Household if you meet the tests and were unmarried or considered unmarried for the year. You’re considered unmarried if:

  • You file a separate return
  • You paid more than half the cost of keeping up the home for the year
  • Your spouse didn’t live in the home during the last six months of the year
  • Your home was the main home of one of these for more than half of the year:
    • Your child
    • Stepchild
    • Eligible foster child

You must be able to claim an exemption for your child. This applies even if you don’t claim the exemption since you released the child’s exemption to the noncustodial parent.

If you file as head of household, you can claim the EIC if you otherwise qualify for it. However, you can’t claim the EIC if you’re Married Filing Separately.

Do I have to claim the EIC on a state return?

Many states offer their own version of the credit. If you file a state return, the state credit would calculate on it. Review the instructions for the state you’re filing.

Additional information on Earned Income Credit (EIC)

For more information on general Earned income tax credit requirements or claiming the credit, get help from H&R Block. Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.

 

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