What is the Earned Income Tax Credit and Can I Claim It?

The Earned Income Tax Credit (EIC) is one of America’s most popular tax credits. It’s designed to help out low and middle-income earners. If you meet the guidelines for claiming the credit, this is one of the most valuable credits you can take.

earned income money

Furthermore, if you qualified for the EIC from 2015 onwards, and you didn’t claim it, you can go refile for those years and claim the money you were entitled to.

What You Need to Know About the EIC

For the 2023 and 2024 tax years, the EIC is worth anywhere from $538 to $6,660. How much you’re entitled to depends on your filing status and the number of children you have. But you can still claim lesser amounts if you don’t have any children.

Keep in mind that the Earned Income Credit is a refundable tax credit, so it doesn’t reduce your taxable income. It’s money directly in your bank account, which makes it one of the best tax credits you can claim. Lower income families can even pay no tax and get free money from the Federal government because of the EIC.

Who Qualifies for the EIC?

Obviously, you must fall below the income limits for the EIC. However, there are other qualifications that determine who’s eligible. There are a variety of rules, but we’re going to list the primary ones below:

  • Your earned income must be at least $1. Unemployment benefits and pension payments don’t qualify.
  • Your total investment income must fall below $3,650.
  • If your filing status is married and filing separately you can’t claim this credit.
  • You can’t have filed Form 2555 or Form 2555-EZ for Foreign Earned Income and Foreign Earned Income Exclusion respectively.

If you’re a member of the clergy, the military, or you have a disability/a child with a disability there are special rules. Make sure you look into this if you fall into any of these categories.

How Much is the EIC Worth?

Here’s a quick guide to how much people are entitled to for the tax year:

  • If you had no children: The maximum EIC amount you can claim is $538 and your income can’t be above $21,710, if married.
  • If you had one child: The maximum EIC amount is $3,584 and your married income limit is $47,646.
  • If you had two children: The EIC credit is worth a maximum of $5,920 and your income can’t have been above $53,330 if married.
  • If you had three or more children: The EIC credit is worth the full $6,660 and your joint income can’t have been above $56,844

earned income tax calculator

Take note that when it comes to income limits, this applies to both earned income and adjusted gross income. The less you earn the more you can claim.

If you’re confused about your calculating the earned income credit, you can use the EIC calculator to get a good idea of your credit amount.

this includes everything from your salary to tips and any additional taxable pay received from your employer. Adjusted gross income is calculated by taking your earned income and subtracting deductions.

How Do Children Influence the EIC?

The more children you have (up to three) the more you can claim through the EIC. Each child must meet certain qualifying tests, however.

  • They must be your immediate offspring, an adopted child, a stepchild, or a grandchild. They can also be a sibling, half-sibling, or a niece/nephew.
  • At the end of the tax year, the child must be below the age of 19. They can be under 24 if they’re in full-time education.
  • If your child is totally and permanently disabled, they qualify at any age.
  • The child must have lived with you or your spouse for at least six months in the US.

Any child claimed must have a social security number and you have to supply the date in which they were born.

What if You Have No Children?

People with no children are also entitled to claim the EIC as long as they don’t exceed the income limits, based on their filing status.

You also must have lived in the United States for at least six months during the previous tax year, you can’t be claimed as a dependent on any tax return, and you must be at least 25 but under the age of 65 come the end of the year.

What if You Make an Error with the EIC?

Errors on your tax return can lead to your refund being delayed by many months. The IRS could even take the step of denying you the EIC entirely.

What happens if the IRS denies your EIC claim?

First, you must pay any amount paid in error, including any interest levied.

In some cases, you may also have to file Form 8862 before you can attempt to claim the EIC again. The IRS may also decide to ban you from claiming this credit for two years if they feel you were purposely disregarding the rules and regulations.

Filing fraudulently can lead to a ban of ten years from claiming the EIC and may even lead to legal action against you as filing fraudulent tax returns is a crime.

To make sure none of this happens to you, try using a reputable online tax preparation platform.

Do keep in mind that even if someone files your return on your behalf the IRS will continue to hold you personally responsible for that return.

Claiming the Earned Income Credit

You’ll be able to file your taxes soon so don’t miss out on claiming this valuable tax credit. It just might mean an extra $2,000 or more in your pocket.

Few other tax credits can earn you that kind of money! Online tax filing asks you simple questions and correctly calculates the Earned Income Tax Credit for you.

If you haven't received your W2 yet you can get your W2 online with the Free W2 search and import tool from TurboTax.

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