How To Qualify for Earned Income Tax Credit

Earned Income Tax Credit (EITC) is a refundable tax credit designed to help low- and moderate-income taxpayers. With EITC, you _may _receive a refund even if you do not owe any taxes.

And it doesn’t matter whether you are single or married, have children or not. The amount of EITC received depends on several factors, including income, filing status - as well as the number of qualifying children.

Qualifying for this tax credit involves meeting specific criteria. As this topic may feel overwhelming, we've broken it down into a simple, easy-to-understand guide.

Below we have distilled all you need to know about qualifying for the EITC. Dive in!

Eligibility Criteria for EITC

Primarily income, TIN (Taxpayer Identification Number), and qualifying children determine your eligibility for the Earned Income Tax Credit. But there is more. Like basic qualifying rules and special qualifying rules.

Given below are two tables to help you understand if you meet the required criteria.

Basic Qualifying Rules

Factor Requirement
Age Between 25 and 65 years
Filing status You must be one of the following:
  • Married filing jointly
  • Head of household
  • Qualifying surviving spouse
  • Single
  • Married filing separate
Filing requirements Even if you are not required to file a tax return, you must do so to claim the EITC. This means filing:
  • Form 1040
  • Form 1040-SR, or
  • Form 1040-NR.

    Ensure that you correctly complete and attach a Schedule EIC when need be.

Investment Income Less than $11,000 in 2023 (subject to change yearly)
Work status Employed or self-employed with earned income
U.S. citizenship Being a U.S. citizen or resident alien for the entire tax year is necessary for claiming the EITC.

If you or your spouse (if filing jointly) are nonresident aliens, you may still be eligible if you meet certain qualifications and elect to file as a resident alien.

Earned income Earned income under $63,689 (as of 2023)

Note that your earned income, such as wages, salaries, tips, or self-employment income, should fall within the specified income limits set by the IRS.

These limits vary depending on your filing status and the number of qualifying children.

Taxpayer Identification Number (TIN) Both you and your spouse (if filing jointly) must have a valid Social Security number (SSN) issued by the Social Security Administration.

Qualifying children should also have a valid SSN, TIN, or Individual Taxpayer Identification Number (ITIN).

Special Qualifying Rules

Factor Requirement
Military personnel Members of the armed forces may include nontaxable combat pay as earned income for the Earned Income Tax Credit (EITC) calculation.
Clergy members Members of the clergy may be exempt from self-employment tax and must make voluntary payments to qualify for EITC.

Disability and EITC

For disabled individuals, it is essential to determine whether their disability benefits and the EITC refund are considered earned income for the purpose of the Earned Income Tax Credit.

So, if you receive disability benefits, these benefits might be considered earned income when applying for the Earned Income Tax Credit (EITC).

Qualifying Children — Definition, Importance, and Criteria

Having a qualifying child or children can substantially increase your EITC. It is essential to understand who meets the criteria for a qualifying child to claim this tax credit.

Relationship: The dependent must be related to the taxpayer (child, stepchild, sibling, stepsibling or their descendant), either by blood or through adoption or fostering.

Age: The qualifying child should be:

  • Under 19 by the end of the tax year, or
  • Under 24 if they are full-time students.

However, there is no age limit for a child who is permanently and totally disabled.

Residency: The child must have lived with you in the United States for more than half of the tax year. Temporary absence due to education, military service, medical care, or detention can count as living with you, depending on the circumstances.

Support: The qualifying child cannot provide more than half of their own support, such as food, clothing, housing, medical care, and transportation.

But what happens in the case of separated or divorced parents?

Generally, the custodial parent can claim the EITC with a qualifying child regardless of who claims them as a dependent. However, there are additional requirements and exceptions to be aware of; consider consulting a tax professional for help.

How to Claim EITC: A Step-by-Step Guide

Claiming the Earned Income Tax Credit can be done in a few simple steps. Follow this guide to ensure you get the tax credit you deserve.

  1. Determine your eligibility

Review the eligibility criteria mentioned above. If you meet the requirements, proceed to the next step.

  1. Gather necessary documents

Collect all relevant documents, such as W-2 forms, 1099 forms, Social Security numbers for you, your spouse, and qualifying children, and any other supporting documents related to your income and expenses.

  1. Calculate your credit

Use the IRS EITC Assistant tool (available on the IRS website) to determine whether you qualify for the Earned Income Tax Credit and estimate the amount you may receive. The tool will walk you through the process, including determining your filing status, income level, and number of qualifying children.

  1. File your tax return

Complete and file your tax return: Form 1040, 1040-SR, or 1040-NR. Remember to include a completed Schedule EIC if you have qualifying children. You can file your tax return by mail, electronically through the IRS e-file system, or with the help of a tax professional.

  1. Claim your credit

On your tax return, make sure to enter the amount of your calculated EITC on the designated line. If you file electronically, the software will automatically guide you through this process. Ensure accuracy of information to avoid delays or complications with your credit claim.

  1. Wait for the decision

After submitting your tax return, the IRS will review your EITC claim. It may take several weeks for the IRS to process your return, especially during the busy tax season. If you are entitled to the EITC, the IRS will issue your credit in the form of a tax refund. You can track the status of your refund through the Where's My Refund? tool on the IRS website.

  1. Receive your tax refund

Once your refund is approved by the IRS, they will deposit the amount directly into your bank account or mail you a check, depending on your selected payment method. The IRS may also apply your EITC towards any outstanding tax debts or certain other debts, such as past-due child support or student loans, before issuing a refund.

Potential Errors To Avoid When Claiming EITC

For the smooth processing and approval of your EITC claim, avoiding errors is key. Here are some common mistakes to watch out for:

Incorrect Social Security numbers

Ensure you enter the correct SSN for you, your spouse (if filing jointly), and qualifying children. Double-check the numbers for accuracy to avoid delays or rejections.

Incorrect filing status

Choosing the wrong filing status can impact your eligibility for the EITC. Carefully review the requirements for each filing status to make sure you select the appropriate one.

Incorrect income reporting

Make sure you report all forms of earned income, including tips, freelance work, and any other relevant sources. Underreporting or overreporting income could lead to disqualification or a reduced EITC amount.

Misreporting qualifying children

Provide accurate information about qualifying children and double-check the criteria to ensure they qualify. Incorrect or incomplete information about qualifying children may lead to your EITC claim being reduced or denied.

Not attaching Schedule EIC

For those with qualifying children, failing to attach a completed Schedule EIC to your tax return can result in your EITC claim being denied or delayed. Make sure to fill out and attach this form when filing your tax return.

Mathematical errors or miscalculations

Errors while calculating your EITC could affect the amount you receive or cause your claim to be delayed. Double-check all calculations and consult the IRS EITC Assistant tool or IRS instructions to ensure your calculations are accurate.

Consequences of Errors in Claiming EITC

Making errors when claiming the EITC can cause delays, denials, or reduced credits. In some cases, errors or fraud may lead to penalties, such as paying back the excess credit received and being temporarily or permanently disqualified from claiming the EITC in the future.

To avoid these consequences, be thorough and accurate when filing your tax return and claiming the Earned Income Tax Credit. If you're unsure or need assistance, consider consulting a tax professional for guidance.

How EITC Can Affect Other Tax Deductions and Credits

The Earned Income Tax Credit can have an impact on other tax deductions and credits you may be eligible for. Understanding these interactions can help you maximize your overall tax benefits.

Child Tax Credit: The EITC is separate from the Child Tax Credit (CTC), and claiming one does not disqualify you from claiming the other. In fact, both credits complement each other and can be used to increase your tax refund or reduce your tax liability.

So, if you're eligible for both, make sure to claim them accordingly.

Child and Dependent Care Credit: The EITC does not affect your eligibility for the child and dependent care credit, which is designed to help parents with childcare expenses for qualifying children under 13. If you meet the eligibility criteria, you can claim both credits with ease.

Education Credits: The EITC does not directly affect your eligibility for education tax credits, such as the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC).

However, having a higher adjusted gross income (AGI) due to the EITC could potentially impact the amount of education credit you qualify for, as these credits have income limitations.

Be sure to review the income requirements for each education credit.

Retirement Savings Contributions Credit (Saver's Credit): While claiming the EITC does not disqualify you from claiming the Saver's Credit, your EITC amount may impact your AGI. The Saver's Credit is dependent upon your AGI, with a lower AGI qualifying you for a higher credit percentage.

It is important to review and consider your adjusted gross income when calculating your potential Saver's Credit.

Frequently Asked Questions

1. What is the Earned Income Tax Credit (EITC)?

The Earned Income Tax Credit (EITC) is a refundable tax credit for low to moderate-income working individuals and couples, particularly those with children. The credit is designed to supplement household incomes and encourage work, by effectively reducing the amount of tax owed and potentially increasing the overall amount of the tax refund.

2. Who qualifies for the Earned Income Tax Credit (EITC)?

To qualify for the EITC, you must meet certain criteria including having an earned income, a valid Social Security number, a filing status other than “married filing separately,” and meeting specific income limitations. Additionally, you can qualify without children, but your potential credit amount will be lower than those with qualifying children.

3. How is the Earned Income Tax Credit (EITC) calculated?

The EITC is calculated based on your earned income, filing status, and the number of qualifying children. The credit amount increases as your earned income increases up to a certain threshold and then starts to phase out gradually. The IRS provides an “EITC Assistant” online tool to help taxpayers calculate their potential EITC amount. You can also follow the instructions provided in the IRS EITC instructions booklet.

4. How does the Earned Income Tax Credit (EITC) impact my tax return?

The EITC is a refundable credit, meaning it can reduce your overall tax liability, possibly to zero. If your EITC is more than the total income tax you owe, you may receive a refund for the difference. This credit can potentially increase the amount of your tax refund, making it a valuable financial resource for eligible individuals and families.

5. Do I need to have a child to qualify for the EITC?

No, adults without children can qualify for the EITC, but the potential credit amount will be lower than those with qualifying children. To qualify for the EITC without a child, you must meet the specific criteria set by the IRS, including age limits, residency requirements, and adjusted gross income (AGI) limitations.

However, it is important to remember that the credit is generally more beneficial to those with qualifying children, as the amount increases with the number of qualified children claimed.