The Earned Income Tax Credit, or EITC, is a credit designed for lower income working individuals, particularly those with children.
If a person qualifies, the EITC can reduce any taxes owed and increase their tax refund.
The credit amount a person can receive from the EITC depends on their income level and the number of children they have.
The credit rate and the maximum credit rate vary by family size, with larger credit amounts available to families with more children.
However, even if a person doesn’t have a child, they can still qualify if they earn a relatively low income.
For tax year 2016, a person must earn less than $14,880 to receive the EITC ($20,430 married filing jointly) if they have no qualifying children.
How does the Earned Income Tax Credit work?
The EITC is a refundable tax credit based on the amount of income a household earns.
Even if income tax wasn’t withheld from a person’s pay throughout the year and they weren’t required to file a tax return, they may still qualify based on income level. In that case, the person would get the credit amount back in a tax refund.
However, a tax return must be filed to get this credit, even if a person wouldn’t otherwise be required to file.
The maximum credit amounts for tax year 2016 are:
- $6,269 with three or more qualifying children
- $5,572 with two qualifying children
- $3,373 with one qualifying child
- $506 with no qualifying children
How do I claim it?
For 2016 tax returns, if you want to claim the EITC, you must meet all of the following guidelines:
- You, your spouse if you are married, and your children have Social Security numbers
- You earn income working for yourself or as an employee
- You do not use the Married Filing Separately filing status
- You are a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return
- Someone else cannot claim you as a qualifying child for the EITC
- You do not have foreign earned income for which you file Form 2555 or Form 2555-EZ
- You do not have more than $3,400 in interest, dividends, or other investment income
- You are at least age 25, but under age 65 at the end of the year
- You lived in the U.S. for more than half the year
- You do not qualify as a dependent of another person
Earned income and adjusted gross income must fall under these limits:
|Number of Children Living with You||Maximum Adjusted Gross Income and Earned Income|
|0||$14,880 ($20,430 married filing jointly)|
|1||$39,296 ($44,846 married filing jointly)|
|2||$44,648 ($50,189 married filing jointly)|
|3 or more||$47,955 ($53,505 if married filing jointly)|
What if I receive combat pay in the military?
If you receive combat pay, special rules apply.
While ordinarily, you are not required to include combat pay in your earned income, you can choose if you want to include it in your earned income for purposes of calculating the credit.
Including your combat pay may increase the credit amount. Likewise, not choosing to include it may cause the amount you qualify for to be lower.
Keep in mind, you must include all combat pay if you choose to add it to your earned income. You can’t only include partial amounts.
Can I claim all of my children for the EITC?
The number of children you claim for the credit is very important for making sure you take your maximum credit.
The number of children you claim as dependents is not always the same number of children who qualify you for the EITC.
A child for the EITC must live with you for more than half of the year, regardless of who provides support for the child or takes the dependency exemption.
The noncustodial parent can never claim a child for purposes of the EITC.
Each child must meet all four of these tests to qualify:
- Age. The child must be under age 19 at the end of the year or be a full-time student under age 24. If the child is permanently and totally disabled, he or she can be any age. Your child for the EITC must also be younger than both you and your spouse.
- Relationship. A “child” for the EITC can be your son, daughter, stepchild, brother, sister, half-sibling, step-sibling, foster child, adopted child or a descendant of any of these.
- Residency. The child must have lived with you in the U.S. for more than half the year. If you file a joint return, include time lived with your spouse.
- Joint return. The child must not have filed a joint return with his or her spouse, unless it was only filed to claim a refund, and he or she was not required to file a return.