At tax time, most of us have a similar goal: minimize our liability, and maybe even get some money back in the process. The Earned Income Tax Credit, or EITC, is a tax incentive that might be able to help.
You may be eligible for the EITC if you earned a relatively low income in the previous tax year â€" especially if you have children. In this article, we'll explore exactly how to qualify, how much credit you can get, and how to claim it on your tax return. Then we'll follow up with some frequently asked questions about the Earned Income Tax Credit.
What Is Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a refundable tax credit available for low- to moderate-income individuals and families â€" especially those with children. The EITC is claimed when you file your tax return. The maximum amount available for 2021 taxes is $6,728, though the amount of credit you'll receive depends on income, filing status, and how many qualifying children you have.
The EITC is a credit, not a deduction, which means it directly reduces the tax dollars you owe. A deduction, on the other hand, reduces how much of your income is subject to taxation. In practice, this means it's even better than a tax deduction in most cases, and could substantially lower your tax liability or get you a bigger refund.
Who Qualifies for the Earned Income Tax Credit?
The basic qualification for the EITC is simple, but as with all things IRS, there are lots of nitty-gritty specifics that can make or break your eligibility. The first requirement is right there in the name: you must have earned income. You'll also need to:
- Have a Social Security number.
- Have been a U.S. citizen or resident alien for the entirety of the tax year in question.
- Be at least 25 years old, but not over 65.
If you don't have children, you may be eligible based solely on a low income. In the 2021 tax year, you'll need to have earned an adjusted gross income, or AGI, of:
- Less than $21,430 as a single filer.
- Less than $27,380 for married couples filing jointly.
Otherwise, the income limits depend on the number of children you have â€" and the children must meet all qualifications, which include age and residency requirements, and a Social Security number of their own.
2021 Income Limits for Earned Income Tax Credit
| Number of Children | Single or Head of Household | Married Filing Jointly | ||
|---|---|---|---|---|
| No qualifying children | $21,430 | $27,380 | ||
| 1 qualifying child | $42,158 | $48,108 | ||
| 2 qualifying child | $47,915 | $53,865 | ||
| 3+ qualifying child | $51,464 | $57,414 |
Additionally, there are some special rules for military and clergy members, as well those who earn select types of disabilities benefits. If you fall into one of these categories, definitely check out the links â€" these rules will help you determine whether certain monies can be claimed as earned income and applied toward eligibility credit.
How Much Can You Get From the Earned Income Tax Credit?
Although individuals without children have always qualified for a small earned income credit, it's typically been much less than what's offered for those with children. The 2021 tax year is different in that this amount has been increased dramatically to help with COVID-19 relief.
Maximum EITC Based on Number of Children
| Number of Children | Maximum EITC Amount | |||
|---|---|---|---|---|
| 0 | $1,502 | |||
| 1 | $3,618 | |||
| 2 | $5,980 | |||
| 3+ | $6,728 |
The amount of credit being offered to individuals and families with no children is going back down for the 2022 tax year. The American Rescue Plan Act, which was designed to help alleviate the burden imposed by COVID-19, temporarily increased the EITC for those without children, but this increase will not carry over to the 2022 tax year (as of the time of this writing).
How to Get the Earned Income Tax Credit
If you're eligible for the Earned Income Tax Credit and ready to see its effect on your return, the first thing you need to do is to file a tax return. You'll need to do this even if you don't owe any taxes or are not otherwise required to file â€" there's no other way to claim the credit.
You can use U.S. tax forms 1040 or 1040-SR to claim the Earned Income Tax Credit if you don't have qualifying children, but if you do have children, you'll need to include Schedule EITC with your 1040. You can also gather all the necessary documentation and have a tax professional do the paperwork for you, or take advantage of the IRS online Free File tool.
Frequently Asked Questions (FAQs) about the Earned Income Tax Credit
You've got questions about the Earned Income Tax Credit, don't worry â€" we've got answers.
The Earned Income Tax Credit (EITC) is a credit offered to individuals and families that earned a low income during the previous tax year. The amount of credit offered is determined by your filing status (single or married filing jointly) and the number of children you have â€" generally, the more kids you have, the larger the credit you'll be eligible for.
Since the EITC is a credit, rather than a deduction, it comes directly off your tax liability. In other words, if you are getting back $2,000 and get an Earned Income Tax Credit of $2,000, you would receive a total refund of $4,000.
To qualify for the EITC for the 2021 tax year, you must:
You can qualify for the EITC using any of the following tax filing statuses:
Several things can disqualify you from receiving EITC, including:
There may be other disqualifying factors. If you're not sure whether you qualify, it's best to consult with a tax professional. The IRS has a Qualification Assistant tool to help determine your eligibility.
Penny Hoarder contributor Dave Schafer has been writing professionally for nearly a decade, covering topics ranging from personal finance to software and consumer tech. Reporting by Jamie Cattanach is included in this story.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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