The Earned Income Tax Credit (EITC)
A.K.A. The Earned Income Credit (EIC)
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).
Learn About This Popular Tax Credit & See If You Qualify
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.”
EITC Eligibility Requirements
Here are some of the rules that the IRS uses to determine eligibility for the Earned Income Tax Credit:
Social Security Number
You (and your spouse, if married filing jointly) must each have a Social Security Number that is valid for employment and was issued before the due date of your tax return. 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. If you’re claiming the EITC with a qualifying child (see below), the child must also have a Social Security Number.
Your AGI (adjusted gross income) refers to your total income for the year, minus certain adjustments that the IRS allows. You are eligible to claim the Earned Income Credit if your total earned income is at least $1, and both your earned income and AGI are no more than:
- $15,270 (or $20,950 if married filing jointly) with 0 qualifying children
- $40,320 (or $46,010 if married filing jointly) with 1 qualifying child
- $45,802 (or $51,492 if married filing jointly) with 2 qualifying children
- $49,194 (or $54,884 if married filing jointly) with 3 or more qualifying children
Maximum Credit Allowed
For Tax Year 2018, the maximum amount you can claim for the Earned Income Credit is:
- $519 with no qualifying children
- $3,461 with one qualifying child
- $5,716 with two qualifying children
- $6,431 with three or more qualifying children
Qualifying Child Rule
For EITC purposes, a qualifying child must have a Social Security Number (SSN). Your child is considered a “qualifying child” if your child meets all four tests designed by the IRS. The four tests are: Relationship test, Age test, Residency test, and Joint Return test. The four tests are illustrated in IRS Publication 596 (Earned Income Credit). 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. A qualifying child cannot file a joint tax return for that year (unless your qualifying child and their spouse only file a joint return to claim a tax refund). Your qualifying child cannot be used by another person to claim the Earned Income Credit. Furthermore, you cannot be the qualifying child of another taxpayer if you want to claim the EITC on your own tax return.
RELATED: The Child Tax Credit
Filing Status Requirement
Your filing status cannot be “Married Filing Separately” if you want to claim the Earned Income Tax Credit. 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.
Foreign Residents & 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 U.S. resident instead. 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. For more information, please refer to IRS Publication 519 (U.S. Tax Guide for Aliens).
Investment Income Limit
For tax year 2018, your investment income must be $3,500 or less to qualify for the Earned Income Tax Credit. For EITC purposes, investment income generally includes interest, dividends, and capital gains. It can also include royalties and passive activities from Schedule E, though most taxpayers don’t have to deal with those.
How to Claim the Earned Income Tax Credit
The EIC is reported on Line 17 of Form 1040 (U.S. Individual Income Tax Return).
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 tax 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 three qualifying children, you only need to report three 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, see IRS Publication 596 (Earned Income Credit).
Prepare your taxes online and see if you qualify for the EIC: