Earned income tax credit basics: How the EITC works and who qualifies (2024)

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• The earned income tax credit (EITC) can reduce taxes and increase refunds for low- and moderate-income workers and families.
• The dollar amount of credits ranges from $600 to $7,430 for the 2023 tax year, depending on income, filing status, and dependents.
• The EITC was established in 1975 to help lower-income workers offset Social Security payroll taxes and rising food and energy costs.

The earned income tax credit, or EITC, is aimed at giving low- to moderate-income workers and families a tax break. The dollar am out of credits ranges from $600 to $7,430 for the 2023 tax year. The amount you receive depends on your income, filing status, and how many children you have. Eligible workers without children can also claim the earned income tax credit.

In general, the less you earn, the greater the earned income credit. Since it's a refundable tax credit, lower-income taxpayers who have little to no income-tax liability can still receive the total amount of the credit in the form of a tax refund.

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It's important to note that tax deductions and tax credits can both change the amount of tax you owe, but they work differently. Deductions lower the amount of your total income that is subject to taxation, while credits reduce the amount of tax you owe, and some, like the EITC, can provide a refund even if you don't owe any tax.

Who qualifies for the federal EITC?

The EITC was established by the Tax Reduction Act of 1975 as a temporary way to help lower-income workers offset Social Security payroll taxes and rising food and energy costs. It was considered "both an anti-poverty program and an alternative to welfare because it incentivized work." The Revenue Act of 1978 made the EITC permanent.

To qualify for the EITC for the 2023 tax year, you'll need:

• Have worked and earned income of less than $63,398
• Less than $11,000 of investment income for the tax year
• No foreign income for which you claim the foreign earned income exclusion on Form 2555
• A valid Social Security number
• US citizenship or resident alien status
• To meet certain rules if you are separated from your spouse and not filing a joint tax return
• A qualifying childwho meets the age, relationship, residency, and joint return requirements
• Or, without a qualifying child, must have lived in the US for more than half the year, not be claimed as a dependent by anyone else, and be between the ages of 25 and 65 at the end of the tax year

There are special qualifying rules for military and clergy members and workers who have disability income or children with disabilities. To find out if you're eligible for the credit, you can use the EITC Assistant on the IRS website.

In addition to the basic requirements, your adjusted gross income (AGI) must be below the income thresholds to qualify. Here's a rundown:

Earned income tax credit for tax year 2023

If you didn't claim the earned income tax credit for previous years and think you may have qualified, there may still be time. You can file an amended tax return to receive the credit for any (or all) of the previous three tax years for which you should have received the credit.

How has the EITC changed?

Meanwhile, the limit for allowable investment income was bumped up from $3,650 in 2020 to $10,000 or more for 2021 and beyond.

ARPA also adjusted the requirements for married but separate spouses, "who can now claim the EITC if they don't file joint returns, they live with the qualified child for more than half the year, and either they are legally separated under state law or they don't have the same principal place of abode as the other spouse for at least the last six months of the year," says Wittenberg.

Earned income tax credit FAQs