The earned income tax credit (EITC or EIC) has been available since 1975, but it has recently become more attractive to help people deal with the economic effects of the coronavirus. The American Rescue Plan Act of 2021 has expanded the number of people eligible for the EITC and tripled the maximum tax credit.
Here's how the EITC works and how to determine eligibility so you can keep more of your tax dollars and possibly get a tax refund.
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Earned Income Tax Credit Basics
The EITC gives low- to moderate-income workers a refundable tax credit on their federal tax return. A tax credit means you get your tax liability reduced directly by the amount of the EITC. If you don't owe any taxes, the IRS will send you a check or make a direct deposit into your bank account. You may be able to get cash from the IRS even if you haven't had any taxes withheld from your earned income.
Consider also: Tax Credits: What Are They & How Do You Qualify?
Qualify for the EITC
These are the qualifications for the EITC:
- Must have earned income
- Investment income cannot be more than $10,000
- Must have a valid Social Security number
- Must be a U.S. citizen or resident alien for the entire tax year
- Can't claim foreign earned income exclusion on Form 2555
- Can't be the dependent or qualifying child of another taxpayer
What Is Earned Income?
The following types of income qualify as earned income:
- Wages and salaries where federal income tax is deducted on Form W-2
- Income from gig type jobs – such as providing professional services, freelance work, running errands or selling goods online – where the employer doesn't withhold taxes
- Earnings from self-employment
- Union strike benefits
- Certain disability benefits
- Nontaxable combat pay
These incomes do not qualify as earned income:
- Social Security
- Interest and dividends
- Pensions or annuities
- Unemployment benefits
- Child support
EITC Income Limits
Your earned income and adjusted gross income must be below the maximum limits. If your filing status is single, head of household or qualifying widower, your maximum income for tax year 2021 cannot exceed:
- $51,464 with three or more qualifying children
- $47,915 with two children
- $42,158 with one child
- $21,430 if you're not claiming any children
If you're married and filing a joint return, your maximum allowable income is:
- $57,414 with three or more qualifying children
- $53,865 with two children
- $48,108 with one child
- $27,380 if you're not claiming any children
Even if you don't have a qualifying child, you may still be eligible for the EITC if you meet the income requirements.
Qualifying Child Eligibility
A qualifying child must meet these requirements:
A qualifying child can be a son, daughter, an adopted child, a stepchild, a foster child or grandchild. In addition, a brother, sister, half-brother or half-sister and a stepbrother or stepsister will also qualify
The child must be less than 19 years of age at the end of the year and younger than you and your spouse when filing a joint return. However, the age limit increases to 23 if the child was a full-time student.
How Much Is the EITC?
For the tax year 2021, the EITC for individuals with no children maxes out at $1,502 and reaches a maximum of $6,728 for filers with three or more children. The amount depends on your filing status, income and number of qualifying children. Even taxpayers without children can qualify for the EITC.
It's not easy to calculate the amount of your EIC. The simplest way is to use an online calculator.
If You Don’t Have Children
Even if you don't have a qualifying child, you may still be eligible for the EITC if you meet the income requirements. To qualify, you must meet these three conditions:
- You must have lived in the U.S. for six months or more
- No one else is claiming you as a dependent or qualifying child on their tax return.
- You must be at least age 19, unless you were a student for more than five months of the year, in which case, you must be at least age 24.
Consider also: Don't Overlook The Earned Income Tax Credit
How to Claim EITC
You must file a tax return, even if you're not required to file and don't owe any taxes. If you're filing for the EITC with a qualifying child, you'll need to complete Schedule EIC and include it with Form 1040.
Your filing status can be:
- Head of household
- Married filing jointly
- Qualifying widow or widower
Generally, if you're married, you must file jointly to qualify for the EITC. However, there is an exception. You can be eligible for the EITC if you had a qualifying child who lived with you for more than six months of 2021, and you either lived separately from your spouse for the last six months of 2021, or you have a legal separation agreement and didn't live with your spouse at the end of the year.
States With EITCs
The federal EITC is not the only tax credit available. Check this site for state and local governments with EITCs to see if your state also offers a tax credit.
- Congressional Research Service: The “Childless” EITC: Temporary Expansion for 2021 Under the American Rescue Plan Act
- Internal Revenue Services: Earned Income Tax Credit (EITC)
- Internal Revenue Service: Earned Income and Earned Income Tax Credit (EITC) Tables
- Internal Revenue Service: Qualifying Child Rules
- Internal Revenue Service: Schedule EIC
- H&R Block: Earned Income Tax Credit Requirements
- TurboTax: 5 Facts About the Earned Income Tax Credit
- National Conference of State Legislatures: Earned Income Tax Credit Overview
- Internal Revenue Service: States and Local Governments with Earned Income Tax Credit