If you aren’t eligible for the earned income tax credit, or EITC, it means you make too much money to get it. If you are eligible for it, it means you can get a significant tax break.
So what is the EITC, who is eligible and how do you get it? Here’s what you need to know.
What Is the EITC?
The earned income tax credit has been around since 1975, designed to help low- and moderate-income households. It’s a work credit, so you have to be employed to get it — and it may erase or reduce any federal income tax that you owe if you qualify.
“The earned income tax credit provides tax equity to the working poor,” says Sharon Lassar, a CPA and director of the School of Accountancy at the Daniel College of Business at the University of Denver.
She says that the working lower-income population might pay little or no income tax, but they are still subject to Social Security taxes, sales taxes and potentially excise taxes, which are charged on things like gasoline.
“The EITC is a way of putting cash in the pockets of the working poor to help make up for the burden that these regressive taxes place on them,” Lassar says.
In 2023, 23 million workers and families received about $57 billion in EITCs after filing their 2022 taxes, according to the IRS. The average amount of EITC that taxpayers received was $2,541. The year before, 32 million workers and families received about $64 billion in EITCs.
How Much Money Can I Get From the EITC?
Everyone’s situation is different, but what you get could be substantial.
“It’s a powerful tool to fight poverty,” says George Willis, the director of the JD Tax Law Emphasis Program at Chapman University in Orange, California. “For example, for 2023, a single person with three kids making $29,000 can receive a earned income credit refund of $5,857. That is like getting a 20% pay raise.”
Note that the EITC is a refundable tax credit and that even if you don’t owe any federal taxes you can get the money back as a refund.
Who Qualifies for the Earned Income Tax Credit?
It all comes down to how much money you make. Per the IRS, you are qualified for the EITC if your income falls within the following limits in 2023:
| Number of Qualifying Children | Single Filer | Married Filing Jointly |
| Zero | $17,640 | $24,210 |
| One | $46,560 | $53,120 |
| Two | $52,918 | $59,478 |
| Three or more | $56,838 | $63,398 |
Note that you must provide valid Social Security numbers for each qualifying child.
There are some other factors you’ll need to pay attention to:
— Your earned income in 2023 should be less than $63,398.
— Your investment income in tax year 2023 should be less than $11,000.
— You’ll need to have had a valid Social Security number by the due date of your 2023 return, including extensions.
— You’ll need to have been a U.S. citizen or resident alien for all of 2023.
— If you file Form 2555, which is related to foreign earned income, you will not be eligible for the EITC.
— You must meet certain rules if you are separated from your spouse and not filing a joint tax return.
[Read: Married Couples: Is It Better to File Taxes Jointly or Separately?]
If you’re not sure if you meet the qualifications to get the EITC, use the IRS online tool, the Earned Income Tax Credit Assistant. You’ll have to answer some questions to see if you qualify.
How Much Can I Get From the Earned Income Tax Credit?
The more children you have, the larger the credit you’ll receive. Here’s how it breaks down:
| Number of Qualifying Children | EITC Amount |
| No dependents | Up to $600 |
| One | Up to $3,995 |
| Two | Up to $6,604 |
| Three or more | Up to $7,430 |
Note the words “up to,” meaning you may get less than those amounts. Generally, the lower your income, the higher the tax credit.
How Do I Claim the Earned Income Tax Credit?
You’ll need to file your federal taxes, even if you earn less than the 2023 standard deduction (which is $13,850 for single filers and those married filing separately, $27,700 for joint filers and $20,800 for heads of household).
You can file through the Free File Alliance website, a nonprofit coalition of tax software companies partnered with the IRS that offers free electronic tax filing services. (It’s free for anyone who has a 2023 adjusted gross income of $79,000 or less. There may be other qualifying criteria, depending on what type of software you use.)
A good tax software program will alert you if you are eligible for the EITC.
[7 Best Tax Software Companies of 2024]
Common Mistakes Taxpayers Make with the EITC
There are some mistakes taxpayers who try to claim the EITC tend to make. A few things to watch for:
— Incorrect filing status. For instance, filing as single or head of household when you should file as married filing jointly.
— The wrong parent claiming the EITC. “Only one person can claim the child, not two,” Willis says. “The rules surrounding which parent can claim get tricky when parents have dual physical custody of the child.”
— Your kids, or some of them, don’t qualify. This can get a little tricky. For instance, maybe your partner’s child lives with you and you’re supporting them, but you aren’t married. In that case, that child probably won’t help you qualify for an EITC. But if you have a stepchild, they will likely help you qualify. A foster child may help you get the EITC, but they need to have been placed in your care in certain specific situations, such as by a state, local government or Indian tribal government or a court order.
— Getting some of the information wrong on your taxes. If you’ve put down a wrong Social Security number it could derail your chances of getting the EITC.
— Incorrectly reporting earned income. The numbers on your forms need to match the records the IRS has.
— Believing you aren’t eligible for the EITC and not claiming it. “It’s important to know about the EITC because it can provide a substantial amount of cash. A mistake people make is not filing a tax return because their income is so low that they don’t owe income taxes. By not filing a return, they will not receive the EITC,” Lassar says.
— Claiming the EITC when you are not eligible for it. Fortunately, tax preparation software or a good tax preparer shouldn’t make that mistake.
[How to Find a Reputable Tax Preparer Near You]
People doing their taxes on their own can definitely make mistakes when it comes to the EITC, says Mark Johnson, a teaching professor and fellow in investments and portfolio management at Wake Forest University School of Business in Winston-Salem, North Carolina.
“Last year, the IRS announced that roughly 33% of the earned income tax credits are paid in error, including unintentional errors as well as intentional misstatements,” Johnson says.
“I advise taxpayers to use credible tax preparers if they do not prepare their own tax returns as well as ask questions. Because at the end of the day, the taxpayer signing the tax return is ultimately responsible and not the preparer if a third party prepares the tax return,” he adds.
If you don’t make much money and are eligible for the EITC, hiring a tax preparer may not be something you can budget for. But there are a lot of options for people who need free tax help, from the IRS Free File program to Volunteer Income Tax Assistance programs that the IRS provides.
“Taxpayers should watch out for tax preparers who might play the game of fictitiously overstating net income from an existing or fictitious business for maximum EITC credits on their tax returns,” says Stan Velitois, a tax professor at Fordham University Gabelli School of Business in New York City.
Velitois says that you wouldn’t think of overstating taxes on a tax form as a way of cheating, “but the way the EITC calculation works there is actually an incentive to increase income in certain income bands. The IRS carefully watches out for EITC fraud, including monitoring tax preparers.”
If a taxpayer is known to have fraudulently claimed an EITC, Velitois says they’ll be banned from claiming the credit for 10 years.
What if I Forgot to Claim the EITC?
You have three years to claim it after the original tax return due date, according to the IRS website. You’ll need to file an amended tax return using IRS Form 1040X.
The final word on the EITC: If you’re eligible for it, you should definitely claim it. It’s your money, and it’ll reduce your tax bill.
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What Is the EITC and Who Qualifies? originally appeared on usnews.com
Update 04/09/24: This story was published at an earlier date and has been updated with new information.
