The Earned Income Tax Credit (EITC)Published:
Also Known As The Earned Income Credit (EIC)
The Earned Income Tax Credit (EITC or EIC), which has been around since 1975, 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 get 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
NOTE: The childless EITC has been expanded for tax year 2021.
For 2021 only, more childless workers and couples can qualify for the EITC – and the maximum credit is nearly tripled for these taxpayers. Also for the first time, the EITC is now available to both younger workers and senior citizens.
Here are some of the rules that the IRS uses to determine eligibility for the Earned Income Tax Credit.
Social Security Number (SSN)
You (and your spouse, if married filing jointly) must each have a Social Security Number (SSN) 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 an 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.
There is no upper age limit for claiming the credit if taxpayers have earned income. In the past, the EITC for those with no dependents was only available to people ages 25 to 64. There are some special exceptions for people who are 18 years old and were formerly in foster care or are experiencing homelessness. Full-time students under age 24 don’t qualify.
Income Limits for 2021 Tax Returns
For 2021, the EITC is generally available to filers without qualifying children who are at least 19 years old with earned income below $21,430 for single filers ($27,380 for spouses filing a joint return).
|Children or Relatives Claimed||Max AGI (filing as Single, Head of Household, Widowed or Married Filing Separately)||Max AGI (filing as Married Filing Jointly)|
Income from 2019
Another change for 2021 allows individuals to figure the EITC using their 2019 earned income if it was higher than their 2021 earned income. To qualify for the EITC, people must have earned income through employment or other sources, so this option may help workers get a larger credit if they earned less in 2021 or received unemployment income instead of their regular wages. See the instructions for Form 1040, line 27 c.
Phase Out & Credit Limits
For 2021, the amount of the credit has been increased and the phaseout income limits at which taxpayers can claim the credit have been expanded. For instance, the maximum EITC for a married couple filing jointly with three or more children is $6,728 and the upper-income level for that same family is $57,414. (In 2020, the maximum EITC for a family in that situation was $6,660 and the upper-income level was $56,844.)
The maximum EITC for filers with no qualifying children is $1,502.
For tax year 2021, the maximum amount you can claim for the Earned Income Tax Credit is:
- $1,502 with no qualifying children
- $3,618 with one qualifying child
- $5,980 with two qualifying children
- $6,728 with three or more qualifying children
Taxpayers should also note that any Economic Impact Payments or Child Tax Credit payments received are not taxable or counted as income for purposes of claiming the EITC. Eligible individuals who did not receive the full amounts of their Economic Impact Payments may claim the Recovery Rebate Credit on their 2021 tax return.
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 Expanded 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.
RELATED: How Getting Married Affects Your Taxes
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 2021, your investment income must be $10,000 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 (EITC)
The EIC is reported on Line 27a 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:
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