The Earned Income Tax Credit (EITC) is a federal tax credit that can provide significant financial relief for low- to moderate-income taxpayers under 65.
Unlike tax deductions that lower taxable income, tax credits reduce taxes dollar-for-dollar. The Earned Income Tax Credit is a refundable tax credit, meaning it can turn a tax bill into a tax refund or increase the amount of an existing refund. For instance, a $500 EITC could lower a $100 tax bill to just $200, with the remaining $400 as a refund from the Internal Revenue Service.
Who qualifies for the Earned Income Tax Credit?
To qualify for the Earned Income Tax Credit, one must have earned an income of less than $59,187 in the 2022 tax year, with an investment income of less than $10,300. Additionally, a valid Social Security number and U.S. citizenship or residency all year are necessary. Qualified children must be under 19 years of age or under 24 if a student, or with no age limit if permanently disabled. The child must also have lived with the taxpayer for at least half the year.
READ ALSO: What You Need to Know About Schedule Earned Income Credit (EIC)
How much will you get?
The Earned Income Tax Credit credit can go as high as $6,935 for three or more qualifying children, $6,164 for two, $3,733 for one qualifying child, and $560 for no qualifying child.
Income limits
The Earned Income Tax Credit has restrictions on income eligibility for the 2022 tax year based on the number of qualifying children with valid Social Security numbers. For the 2022 tax year, those limits include:
- $53,057 ($59,187 married filing jointly) for those with three or more qualifying children
- $49,399 ($55,229 married filing jointly) for those with two qualifying children
- $43,492 ($49,622 married filing jointly) for those with one qualifying child
- $16,480 ($22,610 married filing jointly) for those without any qualifying children.
In addition to the federal Earned Income Tax Credit, many states offer their own EITC programs for state income taxes. The CBPP map can inform taxpayers whether their state offers an EITC program. The federal Earned Income Tax Credit is used as a basis for calculating the majority of state EITCs, with a proportion applied to determine the final credit amount. Some states EITC programs offer refundable tax credits, while others do not.
In summary, the Earned Income Tax Credit is an often-overlooked tax break that can provide substantial financial assistance to eligible taxpayers. With federal and state Earned Income Tax Credits available, taxpayers can lower their tax bills or increase their refunds. It is essential to determine whether one qualifies for the EITC to maximize tax benefits.
