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How to Qualify for the Earned Income Credit for Taxpayers?
How to Qualify for the Earned Income Credit for Taxpayers?
The Earned Income Tax Credit (EITC) is a tax benefit designed to make life easier for under-resourced families. Both the federal government and 33 states offer earned income tax credits. The federal EITC was enacted in 1975, and Rhode Island offered the first state EITC in 1986.
Thanks to the American Rescue Plan Act related to the COVID-19 pandemic, some rules changed around the EITC. In general, they made the EITC an even greater benefit for those who qualify, but some changes are no longer in place for the 2022 tax year. More on that later.
Table of contents
What is the Earned Income Tax Credit?...Read more
Why should I file for the Earned Income Tax Credit?...Read more
Who Qualifies for the Earned Income Credit?...Read more
What exactly are the income levels for the Earned Income Tax Credit 2022?...Read more
Do I need to have a child in order to qualify for the Earned Income Credit?...Read more
Qualifications for a tax filer's child to receive the Earned Income Credit...Read more
What disqualifies you from earned income credit?...Read more
Tax credit vs tax deduction...Read more
Are there other tax credits I can qualify for?...Read more
What is the Earned Income Tax Credit?
Depending on your income level, the credit, also known as the EITC, can lower the amount of tax people need to pay on their adjusted gross income and give working families, particularly families with children, some much-needed tax relief. Adjusted gross income is the total amount of your income minus any deductions you take.
This includes any kind of taxable income that you earned throughout the tax year. That means any wages from your job or 1099 payments, if you're self-employed or freelancing, your salary, any tips you receive, plus any other taxable income an employer pays you.
Why should I file for the Earned Income Tax Credit?
In 2020, more than 25 million taxpayers claimed the federal EITC, receiving close to $60 billion for the 2019 tax year. On average, each person who claimed the credit was paid $2,411. In 2022, about 31 million taxpayers received the EITC.
As it is a refundable credit, claiming it can reduce your tax bill. If your credit amount exceeds your income, you will receive a refund from the IRS.
Who Qualifies for the Earned Income Credit?
The Earned Income Tax Credit benefits people who work. Workers receive a percentage of their annual income as a tax credit. Earned income credit qualifications depend on the income and the makeup of your family.
In general, research on the earned income tax credit shows that they are effective in the sense that they benefit the lowest earners, their intended recipients, and they encourage unmarried people and primary earners in married couples to work.
If you fall within the income levels allowing you to receive the EITC, there are several boxes you need to tick so that you can qualify for the credit.
- You have to have an income that you earned during the tax season, even if it's only $1. Things like unemployment and pension payments are not considered earned income.
- If you’re married but separated from your spouse, you can qualify for the credit as a single filer, as long as your child lived with you for more than half the year. It also must have been 6 months or more since you last lived with your spouse. Alternatively, you can have a separation agreement or decree in place.
- You won't be eligible for the Earned Income Tax Credit, if you're someone who is required to file Form 2555, which is used to report Foreign Earned Income, or Form 2555-EZ, which is used for Foreign Earned Income Exclusion.
- If you receive income from investments, it must total $10,000 or less.
What exactly are the income levels for the Earned Income Tax Credit 2022?
For the 2022 tax year, the IRS set new maximum limits on the credit for different income levels and circumstances. These are laid out in the following EIC table.
Earned income tax calculator
The IRS has a handy way to figure out how much you could receive through the credit. Just answer these questions to see if you qualify.
Number of children
Maximum EITC you can receive
Max AGI a single or head of household filer can have
Max AGI married and joint filers can have
0
$560
$16,480
$22,610
1
$3,733
$43,492
$49,622
2
$6,164
$49,399
$55,529
3 or more
$6,935
$53,057
$59,187
Do I need to have a child in order to qualify for the Earned Income Credit?
No, you do not need to have a child in order to receive the credit. As long as your adjusted gross income is $16,480 or less, if you're a single filer, or $22,610 or less if you're married or filing jointly, you can still qualify for the credit.
The credit available to people with no children is significantly lower than it was in 2021, because the American Rescue Plan Act increased it from $543 to $1,502 that year. This was done as a measure to provide Americans with more support during the pandemic. But that boost did not continue in the 2022 tax year.
For the 2023 tax year, single filers need to have income less than $17,640 or lower than $24,210 for taxpayers filing jointly.
Qualifications for a tax filer's child to receive the Earned Income Credit
Your EITC will be significantly higher if you have a child. The idea is that families with children have higher expenses and if their income is low, they stand to benefit more from a tax credit like this.
Relationship
If you claim a child, or several children, as dependents when you file your tax return, and you claim the earned income credit, the child or children must fit certain criteria.
If they are your son, daughter, stepchild, adopted child, foster child or grandchild, they fit the criteria. The credit also applies to children who are your sibling, half-sibling or stepsibling, and to any of their children, which would be your nieces or nephews.
Many new parents struggle with the question, do new born babies get earned income tax credit? As long as they were born during the current tax year, they do.
Residency
In order for you and your family to qualify for the credit, your child has to have spent at least half the year living with you or your spouse in the US.
Age
Every qualifying child needs to be 19 years of age or younger at the end of the tax year. If you're filing jointly with your spouse, the child has to be younger than both of you, unless the child was a full-time student, in which case they must be under 24. For kids who are disabled, both permanently and totally, there is no age limit set by the IRS.
What disqualifies you from earned income credit?
An error on your income tax form could result in you receiving your EITC money for up to several months. The IRS might even deny you the entire credit.
Not only does a tax form error delay the EITC part of your refund – for months in some cases – it also means the IRS could deny the entire earned income credit. If that happens, the IRS requires you to take certain actions.
- You'll have to pay back any EITC money that received along with interest
- There's a chance the IRS will ask you to file Form 8862, the Information to Claim Earned Income Credit After Disallowance form, or you won't be able to claim the EITC again
- If the IRS makes the determination that you filed your tax return with “reckless or intentional disregard of the rules” they may not allow you to claim the credit for the next two years
- A discovery of fraud would mean the IRS would ban you from claiming the credit for a decade
Quick tip
If you neglected to claim the earned income credit on any of your tax filings in the last three years, and you're pretty sure you qualified for it, the IRS welcomes you to amend to do an amendment to those tax returns and still get that money.
Tax credit vs tax deduction
The major difference between tax credits and deductions is that deductions subtract from your taxable income. The smaller your income, the less you will pay in income tax.
But tax credits subtract from your tax bill after your Adjusted Gross Income (AGI) has been determined and your tax bill has been calculated. It effectively lowers the amount of tax you are required to pay.
Are there other tax credits I can qualify for?
The IRS makes tax credits available to encourage taxpayers to take some action or to provide a much-needed benefit for under-resourced taxpayers. The credits that are most often claimed are:
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