The government realizes that even if someone is working, they still might need financial support. The Earned Income Tax Credit (EITC) is a generous tax break for workers with low to moderate incomes, especially those with children. It’s one of the few tax credits where you can get money back from the government beyond what you pay in taxes. Here’s how the earned income tax credit works and the rules for qualifying.
What is the Earned Income Tax Credit?
The Earned Income Tax Credit is a tax break for low- to moderate-income workers. Workers who qualify for the earned income tax credit can reduce the amount they owe to the IRS in taxes.
And the EITC is refundable: If the tax credit is larger than taxes owed for the year, the extra money will be refunded back as cash from the government. The Earned Income Tax Credit is only available to people with some kind of work income. It’s not meant for people out of the workforce, like retirees or the disabled.
How does the Earned Income Tax Credit work?
The EITC is a tax credit, which is more valuable than a deduction. If you qualify for this credit, it’s a dollar-for-dollar reduction of your taxes owed. For example, if you qualify for a $600 tax credit, you save $600 in taxes. On the other hand, a deduction only reduces what you owe based on your tax bracket. If your tax bracket is 12%, a $600 deduction would only save you $72 in taxes (12% of $600.)
How much is the Earned Income Tax Credit?
The size of the Earned Income Tax Credit depends on your income, filing status, and number of dependent children. The more children you have, the larger the potential credit. In 2024, the maximum EITC ranges from $632 for someone with no children to $7,830 for a family with 3 or more dependent children. The size of your credit depends on your adjusted gross income too. The IRS reduces this credit as you earn more. If you earn past the annual income limit, you are no longer eligible to use the EITC.
Earned Income Tax Credit 2023
Here are the Earned Income Tax Credits for different family sizes. The table also shows the maximum adjusted gross income you can make in 2023, depending on your filing status, to use this credit.
| Children or other dependent relatives | Maximum possible credit | AGI limit for single, head of household, or widowed filers | AGI limit for married filing jointly filers |
|---|---|---|---|
| 0 | $600 | $17,640 | $24,210 |
| 1 | $3,995 | $46,560 | $53,120 |
| 2 | $6,604 | $52,918 | $59,478 |
| 3 | $7,430 | $56,838 | $63,398 |
Earned Income Tax Credit 2024
The IRS increases the maximum possible EITC and the income cutoff each year for inflation. Here are the numbers for 2024.
| Children or other dependent relatives | Maximum possible credit | AGI limit for single, head of household, or widowed filers | AGI limit for married filing jointly filers |
|---|---|---|---|
| 0 | $632 | $18,591 | $25,511 |
| 1 | $4,213 | $49,084 | $56,004 |
| 2 | $6,960 | $55,768 | $62,688 |
| 3 or more | $7,830 | $59,899 | $66,819 |
What is earned income?
To use the EITC, you must have taxable, earned income during the year. This tax credit is meant for people who are working. Possible types of earned income are:
- Salaries, wages, and tips earned working for someone else
- Freelance or gig economy work
- Self-employment income from running your own business
- Union strike benefits
- Nontaxable military combat pay
- Some disability benefits before you reach retirement age
Earned income does not include:
- Interest and dividends from your investments
- Alimony and child support
- Unemployment income
- Social Security
- Pension or annuity income
Who qualifies for the Earned Income Tax Credit?
You must meet several eligibility requirements to use the Earned Income Tax Credit. The IRS offers a free online tool to check whether you qualify for the earned income tax credit. There are 4 considerations.
Income. You must have some earned income during the year to use the EITC. However, you also can’t earn more than the adjusted gross income limits for your filing status (see the charts above). If you make money investing, you can only use the earned income tax credit if your investment income is $11,600 or less in 2024.
US residency. You must either be a citizen or resident alien to use the Earned Income Tax Credit. You cannot use this tax credit if you earned income in another country and file IRS Form 2555 to exclude the earnings from US taxes.
You must have a valid Social Security number (SSN). If you claim other family members as dependents for this credit, they must also have SSNs.
Filing status. You can claim the Earned Income Tax Credit using the filing status of single, married filing jointly, head of household, or a surviving spouse. You typically cannot claim this credit if you are married filing separately. However, you could use the earned income tax credit with the married filing separately status if you and your spouse lived apart for more than 6 months or you have a legal separation agreement, and you took care of a qualifying child for at least 6 months of the year.
Family. You can claim the Earned Income Tax Credit because you care for a child. It could be your child, an adopted child, a sibling, grandchild, niece, or nephew. The family member must be younger than 19 or younger than 24 if they are a full-time student. If your family member is permanently disabled, the age rules do not apply.
If you are not caring for any family members, you could still potentially claim this tax credit for yourself. To do so, you must be between the ages of 25 to 65. In addition, no one can claim you as a dependent on their tax return.
How to claim the Earned Income Tax Credit
The Earned Income Tax Credit can be claimed on your tax return. On IRS Form 1040, list your earned income and the amount you’ll claim for the EITC. If you are claiming the credit for children, you must also fill out Schedule EIC. Schedule EIC asks for the child's Social Security number, age, and education status, among other things.
If you qualify for a refund, the IRS will send you the money by direct deposit or a prepaid debit card. The IRS recommends filing the return online and using direct deposit to get your money more quickly.
Is the Earned Income Tax Credit refundable?
Yes, the Earned Income Tax Credit is refundable. If your credit is larger than what you owe in taxes, the IRS will send you the difference in cash. For example, if your family qualifies for a $4,123 EITC but only owes $3,123 in taxes, the IRS gives you the $1,000 difference in cash.
Other ways to save on taxes if you don’t qualify for the EITC
Claim other tax credits and deductions. The IRS offers other tax credits to help parents. The Child Tax Credit and the Child and Dependent Care Credit could also help offset childcare costs. If you are paying for college or other education expenses, you could qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit.
Tax deductions also reduce your bills for the year. You may qualify for deductions for health care bills, paying mortgage interest, charitable donations, and state/local income taxes.
Save for retirement. If you save money in a 401(k) or traditional IRA, you deduct your contributions from your taxes. You reduce your tax bill while saving for your future. Low- and moderate-income workers could also possibly qualify for the Saver’s Credit to get more tax help while saving for retirement. Find out if a traditional IRA is right for you.
Use a health savings account (HSA). If you have a high-deductible health insurance plan, you could save during the year in an HSA. You put money aside for future health care costs while also getting a tax deduction.
For more help reducing your IRS bill, speak with a tax professional. They can help you make the best use of the earned income tax credit and other tax breaks.
