The Earned Income Tax Credit (EITC)
Learn About This Popular Tax Credit and See If You Qualify
The Earned Income Tax Credit (EITC or EIC), which has been around since 1975, essentially provides a subsidy for low-income working families. To claim this tax credit, you must meet certain eligibility requirements and you must file an income tax return (even if you aren’t required to file or you owe zero tax).
The EITC is a refundable credit, which means that it can reduce your tax liability beyond zero and pay out the remaining amount as a tax refund. Because of this, people who aren’t normally required to file a tax return may want to do so in order to reap the benefits of the Earned Income Tax Credit.
The term “earned income” is defined by the IRS as “income from wages, salaries or tips, from owning or running a business farm, or certain disability income.”
Here are some of the rules that the IRS uses to determine eligibility for the Earned Income Tax Credit:
1. Social Security Numbers
You (and your spouse, if married filing jointly) must each have a valid Social Security Number. If you (or your spouse) are a non-citizen with an Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number (SSN), you will not be able to claim the Earned Income Tax Credit.
2. EITC Income Limits
Your Adjusted Gross Income (AGI) is found on Line 37 of Form 1040, Line 21 of Form 1040A, or Line 4 of Form 1040EZ. You are eligible for the EITC if your AGI and earned income are each less than the following amounts (for the 2015 tax year):
- $14,820 (or $20,330 if married filing jointly) with 0 qualifying children
- $39,131 (or $44,651 if married filing jointly) with 1 qualifying child
- $44,454 (or $49,974 if married filing jointly) with 2 qualifying children
- $47,747 (or $53,267 if married filing jointly) with 3 or more qualifying children
3. Maximum Credit Allowed
For tax year 2015, the maximum credit is:
- $503 with 0 qualifying children
- $3,359 with 1 qualifying child
- $5,548 with 2 qualifying children
- $6,242 with 3 or more qualifying children
4. Qualifying Child Rules
For EITC purposes, a qualifying child must have a Social Security Number and has to meet certain relationship, age, and residency tests. In general, a qualifying child must be closely related to you, be younger than age 19 (or age 24 if they’re a full-time student), and live with you in the United States for more than half of the year. Additionally, a qualifying child cannot file a joint tax return for that year (unless the child and their spouse have no separate filing requirement and only file a joint return to claim a tax refund). Note that only 1 person is allowed to claim the same child. And furthermore, you cannot be the qualifying child of another person if you want to claim the Earned Income Tax Credit on your own tax return.
5. Filing Status Requirement
Your filing status cannot be “married filing separately” if you want to claim the EITC. All other filing statuses — including single, married filing jointly, head of household, and qualifying widow(er) with dependent child — are eligible for this tax credit.
6. Foreign Residents and Foreign Income
To claim the Earned Income Tax Credit, you must be a U.S. citizen or resident alien all year. If you are a nonresident alien married to a U.S. citizen or resident alien, you may file a joint tax return and elect to be treated as a resident alien instead. For more information, please refer to IRS Publication 519 (U.S. Tax Guide for Aliens).
You also cannot file Form 2555 (Foreign Earned Income) or Form 2555-EZ (Foreign Earned Income Exclusion) if you want to claim the EITC. The Foreign Earned Income Exclusion applies to U.S. citizens and resident aliens who are living and working abroad.
7. Investment Income Limit
For tax year 2015, your investment income must be $3,400 or less to qualify for the Earned Income Credit. For EITC purposes, investment income includes interest, dividends, and capital gains. It also includes royalties and passive activities from Schedule E, though most taxpayers don’t have to deal with those.
How to Claim the Earned Income Credit
The EIC is reported on Line 66a of Form 1040, Line 42a of Form 1040A, or Line 8a of Form 1040EZ. If you have a qualifying child, you will need to file a Schedule EIC (Earned Income Credit) with your Form 1040. If you are claiming the credit without a qualifying child, you do not need to use Schedule EIC.
Schedule EIC is designed to provide the IRS with information about each qualifying child you are claiming for the tax credit. Even if you have more than 3 qualifying children, you only need to report 3 of them on Schedule EIC.
The IRS website has an EITC Assistant to help you determine if you are eligible for the credit.
For more information about this tax break, please refer to IRS Publication 596, Earned Income Credit (EIC).