EITC explained: Insights on the earned income tax credit

Exploring the earned income tax credit (EITC)

11.22.2023

What is the earned income tax credit?

The earned income tax credit (EITC) is a federal tax credit designed to help lift low and moderate-income workers out of poverty while encouraging them to work. The tax credit works by offsetting the amount of taxes someone owes. And because the EITC is a refundable tax credit, someone can still receive it even if they don’t owe any income tax in a year.

The EITC is available to people who work but whose income remains under a certain threshold. The income threshold varies depending on someone’s filing status and number of dependents. In 2023, the income thresholds range from $17,640 to $63,689.1

The EITC was enacted in 1975 and underwent major changes in 1986, 1990, and 1993.2 It has been a valuable tool in helping to lift people out of poverty. In 2018, the EITC alone lifted roughly 5.6 million people — including 3 million children — above the poverty line.3

How much is the earned income tax credit in 2023?

The amount you can get from the Earned Income Tax Credit depends on your filing status, the number of children you have, and your income for the year. And contrary to what some may believe, the credit doesn’t simply decrease as your income increases.

Instead, you qualify for the EITC with your first dollar of earned income. As your income rises, your potential tax credit also rises until you reach a certain point. After that, your EITC amount gradually reduces as your income rises until you reach a point where you don’t qualify at all.

The maximum amount you can get from the EITC is as follows:

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

Who qualifies for the earned income tax credit?

To qualify for the earned income tax credit, you must meet the following basic eligibility requirements4 for 2023:

  • Have worked and earned less than $63,698
  • Have investment income of no more than $11,000
  • Have a valid Social Security number
  • Be a U.S. citizen or resident alien
  • Not file Form 2555, Foreign Earned Income
  • Not be claimed as a qualifying child on anyone else’s tax return

There are also special rules that apply to taxpayers who are separated from their spouses and not filing joint returns, are military members, are clergy members, or have disabilities (or have relatives with disabilities).

You can qualify for the EITC with any filing status, including married filing jointly, head of household, qualifying surviving spouse, single, or married filing separately. However, the income thresholds vary depending on your filing status and the number of children you have.

Finally, you can qualify for the EITC with or without children. But both your income thresholds and your maximum benefit will be lower if you don’t have children.

Read more: What are the tax benefits of marriage?

If you meet the eligibility requirements for the EITC and fall within the appropriate income limits in the section below, make sure to claim your EITC benefit. Otherwise, you’re leaving free money on the table.

What is the tax table for the earned income tax credit?

Whether you qualify for the earned income tax credit and the amount you’re eligible for are both based on your adjusted gross income (AGI), which is your gross income minus certain adjustments. The table below shows the maximum AGI based on your filing status and your number of dependents:

Children or relatives claimed

Filing as single, head of household, or widowed

Filing as married filing jointly

Zero

$17,640

$24,210

One

$46,560

$53,120

Two

$52,918

$59,478

Three

$56,838

$63,698

 

In addition to your AGI, the IRS considers your investment income. In 2023, you may have an investment income of no more than $11,000 to qualify for the EITC.

How does the earned income tax credit work?

The earned income tax credit is a federal tax credit, which means it directly offsets your tax liability for the year. This is different from a tax deduction, which reduces your taxable income.

For example, suppose you had a taxable income of $50,000. If you qualified for a $1,000 deduction, your new taxable income would be $49,000, and that’s how much of your income you would pay taxes on. But for a tax credit such as the EITC, the $1,000 is subtracted from your tax liability. As a result, tax credits help to reduce your tax bill more than deductions do.

The EITC is also a refundable tax credit, which means you can get it even if it exceeds your total tax bill. Many low-income families have relatively low tax bills because of the standard deduction, marginal tax brackets, and the various deductions and credits they may qualify for.

Suppose a low-income family has a total tax bill for the year of $2,500, but they qualify for a $5,000 EITC benefit. Not only would their EITC benefit wipe out the $2,500 they owed in taxes, but it would also provide an additional $2,500 refund.

It’s important to note that when we refer to taxes an individual or family owes, we aren’t just talking about what they have left to pay at the end of the year. We’re talking about the total amount of taxes they owe for the entire, including those they’ve paid throughout the year.

Suppose the family in our example had already paid their $2,500 through the taxes their employer withheld from their paychecks throughout the year. In that case, they would get a refund of $5,000 at the end of the year — the $2,500 they had already paid and the $2,500 of the EITC that exceeded their tax bill.

How to calculate the earned income tax credit

If calculating the earned income tax credit sounds too confusing, there’s no need to worry — you don’t have to calculate it yourself. The IRS has an online calculator called the EITC Assistant that can help you determine whether you’re eligible for the EITC, as well as how much you’re eligible for.

Here’s the process the EITC Assistant goes through to determine your credit benefit:

  1. General information: The EITC Assistant will ask for general information about the tax year, your citizen status, your age, and whether you have a valid Social Security number.
  2. Filing status: The EITC Assistant will ask questions about your filing status and the number of children you will claim for the EITC.
  3. AGI: The EITC Assistant will ask you to estimate your AGI by reporting the various types of income you had, as well as certain deductions and adjustments you’re eligible for.
  4. Qualifying children: The EITC Assistant will ask for information about your qualifying child(ren) to ensure they qualify to be claimed.
  5. Results: Based on the information you provided, the EITC Assistant will tell you how much you’re eligible to get from the EITC for the year, as well as how to file.

Qualifying child criteria for earned income tax credit

For you to claim a child for the Earned Income Tax Credit, they must pass four tests: age, relationship, residency, and joint return.

  • Age: The child must be either under the age of 19 and younger than you, under the age of 24, younger than you, and a full-time student, or any age and permanently and totally disabled.
  • Relationship: The child must be your son, daughter, stepchild, adopted child, foster child, sibling, half-sibling, step-sibling, grandchild, niece, or nephew.
  • Residency: The child must live in the same house as you in the United States for more than half the year, with certain exceptions for births, deaths, and temporary time away.
  • Joint return: The child can’t file a joint return with another individual, such as a husband or wife.

It’s also important to note that only one person may claim each qualifying child. If you share custody of a child with another taxpayer, only one of you may claim them. If there is no court order that dictates which parent will claim the child, the IRS provides certain tiebreaker rules.

How to claim the EITC without a child

It’s not necessary to have a child to qualify for the earned income tax credit. To qualify without a child, you’ll have to meet the following requirements:

  • Meet the basic EITC requirements listed above
  • Live in the U.S. for more than half the year
  • Not be claimed as a qualifying child on anyone else’s tax return
  • Be between the ages of 25 and 65

It’s important to note that if you claim the EITC without a child, both your income limits and the amount you’re eligible to receive will be considerably lower.

When did the expanded earned income tax credit expire?

One of the provisions of the American Rescue Plan Act was to temporarily expand the Earned Income Tax Credit for childless workers, nearly tripling their possible benefit. It also expanded the age range to make working adults ages 19 to 24 eligible.5

Unfortunately, single workers without children or single non-custodial parents are often only eligible for a couple hundred dollars under the EITC. The changes under the American Rescue Plan Act helped to support more than 17 million workers.

The expansion under the American Rescue Plan Act was temporary and only applied to the tax year 2021. The EITC rules for childless adults reverted back starting in tax year 2022.

Consequences of an EITC-related error

Unfortunately, some people may file their tax return claiming the Earned Income Tax Credit, only to find out they don’t actually qualify. According to the IRS, these are the most common errors people make when claiming the EITC:6

  • Your child doesn’t qualify, either because of your relationship to the child, the child’s residency, the child’s age, or because your child filed a joint return with someone else.
  • More than one person claimed the same child. You can only claim a child that lived with you for more than half the year.
  • Your Social Security number on your tax return doesn’t exactly match how it appears on your Social Security card.
  • You’re married but have filed your tax return as single or head of household. You must make sure to file with the correct filing status.
  • You’ve either over or underreported your income or expenses from your job or other income sources.

If you’ve claimed the EITC but the IRS denies your claim for the credit, you’ll have to pay back the money from the credit, along with interest. The next time you claim the EITC, you’ll also need to file Form 8862 with your tax return.

Next, depending on the circumstances of you erroneously claiming the EITC, you could be banned from claiming it for anywhere from two to 10 years, even if you qualify.

Finally, if you submit a claim for a refund for an excessive amount without reasonable cause, you could be subject to the Erroneous Claim for Refund or Credit penalty. This penalty is 20% of the excessive amount you claimed or the total amount of the claim that exceeds the allowable amount.

If you don’t feel confident filing your tax return yourself, consider hiring a qualified tax professional. They can assess your tax situation and ensure you’re only claiming those deductions and credits you’re actually eligible for.

Can I still get a past year's earned income tax credit?

If you believe you qualified for the earned income tax credit in the past but didn’t claim it, the IRS allows you to pursue it for up to three years after the fact. You can claim a past EITC by either filing that year’s tax returns or, if you’ve already filed, amending your tax return for that year.

You can claim the EITC until the following dates:

  • For 2020, if you file by May 17, 2024
  • For 2021, if you file by April 18, 2025
  • For 2022, if you file by 2026

If you aren’t sure if you’ve qualified for the EITC in the past, the IRS still publishes the income limit tables for the past three years on its website.1 Additionally, you can use the IRS’s EITC Assistant, which is a calculator that will ask a series of questions and tell you whether you were eligible for the EITC in a given year.7

 

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1 IRS, “Earned Income and Earned Income Tax Credit (EITC) Tables,” November 2023.

2 Center on Budget and Policy Priorities, “New Research Findings on the Effects of the

Earned Income Tax Credit,” March 1998.

3 Center on Budget and Policy Priorities, “Policy Basics: The Earned Income Tax Credit,” April 2023.

4 IRS, “Who Qualifies for the Earned Income Tax Credit (EITC),” July 2023.

5 Center on Budget and Policy Priorities, “Policy Basics: The Earned Income Tax Credit,” April 2023.

6 IRS, “Common Errors for the Earned Income Tax Credit (EITC),” January 2023.

7 IRS, “Use the EITC Assistant,” October 2023.

Glossary Label
Earned income tax credit (EITC)
Glossary Definition
The earned income tax credit (EITC) is a federal tax credit designed to provide financial assistance to low-to-moderate-income workers. The amount received by a taxpayer depends on filing status, number of children, and annual income.

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