The Earned Income Tax Credit is a tax reduction for working people with low to moderate income

The Earned Income Tax Credit (EITC) is a federal tax benefit that reduces the amount of income tax you owe, or increases your refund, if you work and earn below certain income limits. Unlike most tax deductions, the EITC can result in a refund larger than the taxes you paid during the year — this is called a refundable credit. The IRS administers the EITC, and you claim it when you file your federal tax return.

The credit is designed to help working people afford basic expenses. The amount you receive depends on your income, filing status, and whether you have children. You do not have to owe taxes to receive the credit; even if your income is so low that you normally would not file a return, you can file to claim the EITC and receive money back.

Key Takeaways

  • The EITC reduces your tax bill or increases your refund if you work and earn below income thresholds that vary by filing status and number of children.
  • The credit is refundable, meaning you can receive money back even if you paid no federal income tax during the year.
  • You must have earned income from work to claim the EITC; investment income, unemployment benefits, and Social Security do not count.
  • The IRS provides free tax preparation services through VITA (Volunteer Income Tax Assistance) sites, which can help you claim the EITC without paying a tax preparer.
  • Income limits change each year, so you should check the current limits on IRS.gov or with a tax preparer before filing.

Income limits and credit amounts vary by year and family size

The EITC has different income thresholds and maximum credit amounts depending on whether you have children and how many. A single person with no children can earn more in total income than a married couple with two children and still claim the credit, but the maximum credit amount is smaller. The IRS updates income limits and credit amounts each year based on inflation.

For the 2023 tax year, for example, a single filer with no children could earn up to a certain amount and receive a credit, while a married couple filing jointly with three or more children could earn up to a higher amount. Because these numbers change annually, you should check the IRS website or ask a tax preparer for the current year's limits rather than relying on previous years' figures. The IRS publishes updated limits in January of each year.

You must have earned income from work to claim the credit

The EITC requires that you have earned income — money you made from working. This includes wages from a job, net profit from self-employment, and certain other forms of compensation for labor. It does not include investment income, rental income, unemployment benefits, Social Security, disability payments, or interest and dividends.

If you are self-employed, your net profit (income minus business expenses) counts as earned income. If you had no earned income during the year, you cannot claim the EITC, even if you received other types of income. This is the most common reason people discover they do not may have access to when they attempt to file.

How the credit phases in and out based on your income

The EITC works in three stages as your income rises. In the first stage, the credit increases as you earn more money — this is called the phase-in period. You receive a larger credit for each additional dollar earned, up to a maximum amount.

Once you reach a certain income level, the credit stays at its maximum for a range of income — this is the plateau. After that plateau ends, the credit begins to decrease as your income rises — this is the phase-out period. Eventually, at a higher income threshold, the credit reaches zero and you no longer may have access to. The exact income levels where each stage begins and ends depend on your filing status and number of children, and they change each year.

Filing status and dependent children affect your credit amount

Your filing status — whether you file as single, married filing jointly, head of household, or another status — determines your income limits and can affect the credit amount. Married couples filing jointly generally have higher income thresholds than single filers, which means they can earn more and still claim the credit.

The number of may have access to children you claim also matters significantly. The credit is larger for filers with children than for those without. A may have access to child must be your son, daughter, stepchild, foster child, sibling, or descendant of any of these, must be under age 17 at the end of the tax year, must have a valid Social Security number, and must have lived with you for more than half the year. If you have multiple may have access to children, the credit increases with each one.

You claim the EITC when you file your federal tax return

To claim the EITC, you file a federal income tax return with the IRS, even if you normally would not have to file. You report your income, filing status, and information about any may have access to children. The IRS then calculates the credit based on the current year's rules and either reduces your tax bill or adds the amount to your refund.

You can file on your own using tax software, work with a paid tax preparer, or use free tax preparation services. The IRS operates the VITA program (Volunteer Income Tax Assistance), which offers free tax filing at community centers, libraries, and other locations. VITA sites are staffed by trained volunteers and can help you claim the EITC without paying a tax preparer. You can find a VITA site near you on the IRS website.

State and local earned income credits may also be available

In addition to the federal EITC, some states and a few cities offer their own earned income credits. These work similarly to the federal credit but are administered by state or local tax authorities. A state EITC is separate from the federal credit, so you may receive both if you live in a state that offers one and you meet that state's requirements.

State credit amounts and income limits vary widely. Some states offer a credit equal to a percentage of the federal EITC, while others have their own formulas. If you live in a state with an earned income credit, you typically claim it on your state tax return at the same time you file your federal return. Check your state's tax authority website to learn whether a state EITC is available where you live.

Frequently Asked Questions

What happens if I claim the EITC and the IRS later says I did not may have access to?

The IRS may audit your return and ask for proof that you met the requirements. If you did not may have access to, you may have to repay the credit. This is why it is important to keep records of your income, filing status, and information about any children you claimed. If you used a tax preparer, they should have verified your information before filing.

Can I claim the EITC if I am a student or retired?

You can claim the EITC if you have earned income from work, regardless of whether you are a student or retired. A student with a part-time job can claim it. A retired person who works part-time can claim it. What matters is that you have earned income and meet the income limits for the year.

Do I have to file a return every year to keep receiving the EITC?

Yes, the EITC is claimed on your annual tax return, so you must file each year you want to claim it. Your income, filing status, or family situation may change from year to year, which can affect whether you may have access to and how much credit you receive. You cannot carry forward an unclaimed credit to a future year.

What if my income is too high one year but I expect it to be lower next year?

The EITC is based on your income for the specific tax year you are filing. If your income was too high in one year, you do not may have access to for that year, but you may may have access to the following year if your income drops below the threshold. Each year is separate, so a change in your circumstances can affect your may be able to access going forward.