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Earned Income Tax Credit (EITC)

The Earned Income Tax Credit, or EITC, was designed to help taxpayers working hard to make ends meet. The EITC can reduce the amount of taxes you owe, and can be refunded to you when the amount of credit is greater than your taxes. This can mean a bigger refund and, in many instances, that refund could be even more than you actually paid in taxes.

One in five people miss out on this important credit – worth up to $6,431 for a family of five.

The EITC is a refundable federal tax credit for eligible individuals and families who have earned income from employers, small businesses, side jobs, and self-employment. Taxable earned income includes wages, salaries, tips, and net earnings from self-employment. The credit is used first to reduce any remaining tax liability to zero and because the credit is refundable, money left over is part of the tax refund.

The largest groups of people impacted by the EITC are low- to middle-income earners who may or may not have children. About one-third of people who qualify for the EITC are newly eligible each year because of changes in life circumstances – like having hours cut from full-time to part-time at work, being laid off, or having a child.

Do I qualify for the Earned Income Tax Credit?

The EITC is for low- to moderate- wage earners, from cashiers to truck drivers, and was created to reduce or completely eliminate taxes paid by those groups. It is especially important to consider every year because, according to the IRS, 20% of taxpayers who qualify don’t claim the credit. The earned income limits for the EITC are adjusted every year, so even if you didn’t qualify for the EITC in the past, you may be able to claim it this year, especially if you changed jobs or went through a significant life change.

Was the EITC affected by tax reform?

No, the Earned Income Tax Credit is here to stay and was not changed or eliminated by tax reform.

Claiming the EITC

If you have children, you will use Schedule EITC to report the qualifying children for the credit.  The amount of credit, whether you have children or not, is calculated on a worksheet and reported of the Form 1040 as a refundable credit.

No tax liability? Not required to file a return this year? Self-employed?

You might still qualify for the EITC.

Even if a taxpayer isn’t required to file a return because they did not earn enough during the year, they may still qualify for the EITC. The credit can also be claimed even if there’s no tax liability. However, to get the credit, the taxpayer must file a return and meet all the rules.

The amount of this credit varies depending on your filing status, Adjusted Gross Income (AGI), and the number of qualifying children living with you. Tax Reform did not affect the credit, however the maximum credit amounts and the credit phaseout amounts increased due to the annual inflation adjustments. This chart can help determine whether someone might qualify for the EITC.

No qualifying children

Even if you do not have any qualifying children, you may still be eligible for the EITC if you meet all of the applicable rules, and you (or your spouse if filing a joint return) were at least age 25 but under age 65 at the end of the year.

If you do not have any qualifying children, the maximum credit you could qualify for under the EITC is $519.

Tip/Help

If I claim the EITC, when will I get my refund?

The PATH Act of 2015 requires IRS to hold all tax refunds with EITC until February 15.  This is to allow the IRS to spend more time reviewing EITC claims to reduce and prevent fraud and identity theft.

What is a qualifying child?

In most cases, a qualifying child is a child who meets all of the following tests:

  • Relationship Test - Your qualifying child must be your:

    • Child (son, daughter, stepchild, adopted child, or eligible foster child) or descendant (for example, grandchild or great grandchild)

    • Sibling, half sibling, stepsibling, or descendant (for example, nephew or niece)

  • Age Test - Your qualifying child must be under age 19, a full-time student under age 24, or any age if permanently and totally disabled.

  • Residency Test - Your qualifying child must have the same main home as you for more than half the year.

  • Your qualifying child cannot be used by more than one person to claim the EITC. If a child is the qualifying child for you and another person, you will need to decide who will claim that child. If both of you claim the same child, the IRS will use the tie-breaker rule to determine who can claim the child as a qualifying child and receive the allowed tax benefits including EITC.

Tie-Breaker Rule: If more than one person claims the credit based on the same qualifying child...

  • If only one of you is the child's parent, the parent will receive the credit for that child.

  • If both of you are the child's parents and you do not file a joint return together:

    • The parent with whom the child lived the longest period of time during the year will receive the credit for the child.

    • If the child lived with both parents the same amount of time, the parent with the highest adjusted gross income will receive the credit for the child.

  • If none of you are the child's parent, the person with the highest adjusted gross income will receive the credit for the child if that person has a higher AGI than either parent.

EITC for one qualifying child

If you have one qualifying child, the maximum credit you could qualify for under the EITC is $3,431.

EITC for two qualifying children

If you have two qualifying children, the maximum credit you could qualify for under the EITC is $5,716.

EITC for three or more qualifying children

If you have three or more qualifying children, the maximum credit you could qualify for under the EITC is $6,431.

Rules for claiming the EITC

To claim the Earned Income Tax Credit:

  • You need a valid Social Security number (SSN) – your spouse and dependents must have valid SSNs as well.

  • An SSN must allow you to work; if your spouse works, they must have the same permissions.

  • Must have earned income. If married and file a joint return, you meet this rule if at least one spouse has earned income.

  • Filing status cannot be Married Filing Separately.

  • Be a US citizen or resident alien all year.

  • Must not have filed Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.

  • Generally, you must not have more than $3,500 of investment income (i.e., interest, dividends, net income from rent, net capital gain, and net passive income that is not self-employment income).

  • If qualifying children are used for the credit, they must meet the Relationship, Age, and Residency Tests. A qualifying child cannot be used by more than one person to claim the EITC.

  • If no qualifying children are used for the credit, you must be at least age 25 but under age 65.

  • You cannot be the qualifying child of another person or be claimed as a dependent on another return.

  • Must have lived in the United States for more than half of the year. Members of the military on extended active duty outside the United States are considered to be in the United States during the duty period.

  • Members of the military on active duty have the option of including combat pay as earned income when calculating the EITC. Calculate your return both ways (including and not including combat pay as earned income for EITC purposes) to determine which way gives you the more advantageous result.

  • Taxpayers will not be eligible for the EITC if the IRS has determined that you have previously claimed the credit fraudulently or recklessly. A fraudulent claim results in a 10-year loss of eligibility. A reckless claim results in a two-year loss of eligibility.

Tip/Help

Can I still claim the EITC even if I don’t have any qualifying children?

Yes, but you must be between age 25 and 65.

Claiming the Earned Income Credit after disallowance

If you received a notice of deficiency denying your EITC for a previous year and you want to claim the EITC for current tax-year, you usually need to complete Form 8862, Information to Claim Earned Income Credit After Disallowance, and attach it to your return. You do not need to complete Form 8862 if both of the following apply to you:

  • You are claiming the EITC without a qualifying child for the current year.

  • Your EITC for the earlier year was reduced or disallowed solely because one or both of the children listed on your Schedule EITC were not your qualifying children for that year.

Ways you don’t qualify

If the Social Security card says "Not valid for employment," and the card was issued so that you could get a federally funded benefit (such as Medicaid), you cannot claim the EITC.

You cannot get the credit if you, your spouse, or your qualifying child has:

  • An Individual Taxpayer Identification Number (ITIN) which is issued to a non-citizen who cannot get an SSN

  • An Adoption Taxpayer Identification Number (ATIN) which is issued for a child to adopting parents who have not yet received an SSN for the child being adopted

  • If you (or your spouse if Married Filing Jointly) do not have a SSN, you can apply for one by filing Form SS-5 with the Social Security Administration. If you do not have a valid SSN by the filing deadline for your tax return, you can:

    • Request an automatic 6-month extension of time to file your return. You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

    • If you do not receive your SSN prior to the extended deadline, generally October 15, or you did not file an extension, you cannot claim the EITC. The ability to amend up to three years back once and claim the EITC if you get SSNs after the filing deadline no longer applies.

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