What is the Earned Income Tax Credit (EITC)?

What is the Earned Income Tax Credit, otherwise known as the EITC?

The Earned Income Tax Credit (EITC) was originally created nearly 50 years ago to help offset the tax burdens for the working class who were raising children. Since then, it has expanded to help all taxpayers – even those without children – with a low to moderate income level. If you qualify for the maximum amount, it can be worth more than $7,400 this year. When added with other tax credits, you might get a greater refund or owe less to the IRS.

The IRS reports that there are about 25 million eligible taxpayers that qualify for up to the $70 billion of Earned Income Tax Credits each year. Unfortunately, a lot of families and individuals don’t realize that they qualify. Each year, one out of five taxpayers fail to claim the credit, meaning they miss out on the benefits they deserve and get a smaller refund than they’re eligible for.

Is the EITC a refundable credit?

Yes. The Earned Income Tax Credit is what’s called a “refundable” credit. That means the IRS adds the total amount of the EITC you’re eligible for to your tax refund, regardless of your tax liability, taxes withheld, or estimated payments. Other tax credits “stop at zero,” and you won’t get a bigger refund after your tax liability and refund equal each other. That means this credit increases your tax refund, even if you have no money owed to the IRS.

How much is the EITC worth this year?

The federal Earned Income Tax Credit amount changes every year, and your life might have too.

If you qualify, for tax year 2023, the minimum you claim for the Earned Income Tax Credit is $600 and maximum you could get is $7,430. The amount you get is based on income and family size.

In fact, if you qualify you could get up to:

This is potentially thousands of dollars in your tax refund that you don’t want to miss out on. Your Tax Pro can help make sure you get this benefit.

Do I qualify for the EITC?

One easy way to check is to use an online calculator. Click here to check out Jackson Hewitt’s Earned Income Tax Credit Calculator.

In general, there’s three things to find out if you qualify for the Earned Income Tax Credit.

1. You need a Social Security number for yourself, your spouse, and any qualifying dependent children.
2. All filing statuses except Married Filing Separately can claim the credit.
3. You must have earned income below a certain threshold.

Do I have to have income to qualify for the EITC?

Yes, you must have earned income for earned income tax credit eligibility – either from a job, self-employment, a side gig, or just about anything where you work and “earn” income. Bottom line: you have to have worked for someone or a business and been paid for that work. Tips also count.

And good news for side hustlers, delivery drivers, gig workers, independent contractors, and freelancers, your income that’s reported on a 1099-K form counts and, by definition, is earned income, so you might be able to claim the EITC!

What doesn’t count as earned income to qualify for the EITC?

While it’s still income and needs to be reported on your tax return, there are several things that don’t count as “earned” income in the eyes of the IRS to claim the EITC, including:

• Interest and dividends on investments
• Passive income
• Pensions or annuities
• Social Security
• Unemployment benefits
• Child support

Again, while this money is still taxable and should be reported on a tax return, it doesn’t count toward the EITC.

Can I get EIC with no income?

No, you have to have some amount of income to claim the credit. It’s that your wages and earnings must be below a certain amount…not that you have no income.

If you claimed the EITC in 2022, do you automatically get it in 2023?

No, just because you claimed the EITC last year doesn’t mean it will automatically be on your tax return this year. To get it, it must be claimed each year when you file your tax return. Also, the IRS won’t flag your return if you are eligible but didn’t claim it.

How do you claim the EITC?

The process of claiming the EITC is like other tax benefits. If you meet the requirements and the right information is filed on Form 1040, the tax credit amount will show up in your tax refund. And if you have a qualifying child, you must also file Schedule EIC. Either way, when you meet with your Tax Pro, bring your Social Security number and birth certificate so your names and information is filed accurately.

Frequently asked question about the Earned Income Tax Credit (EITC):

Can I get EITC without a child?

Yes! If you meet the other requirements, you can.

When will the IRS release refunds in 2024 with EITC?

You likely won’t see your tax refund earlier than mid-February. This is because, under federal law, the IRS will check your return more carefully to avoid fraud claims.

If I’m divorced or separated, with children, who claims the EITC?

Typically, only the custodial parent can claim the EITC. It’s generally whomever the child lives with for more than half the year, unless there’s a written declaration granting the noncustodial parent the right to claim it. But, if you have a complex family structure, we strongly urge you to meet with a tax expert because they will make sure the right person is able to claim the credit.

Are there recent changes to the EITC?

While the credit amount increases each year to reflect inflation, there aren’t major changes for tax year 2023. Having said that, more common that changes in your life that will qualify you for the EITC. You might have earned less, had change in custody, moved, filing status, or more. Stay up to date with other law changes by speaking with your Tax Pro.

In summary, there are earning requirements and limits, relationship requirements for dependents, and even age limitations on children. The EITC has some of the most complex rules in the tax code, but also some of the biggest benefits. You need to be cautious that you claim this credit correctly, because if you don’t follow the rules exactly the IRS may send a notice or bill and even hold a refund until you respond. Even worse, if there’s a mistake on your earned income tax credit claim, the IRS may even disallow EITC claims on future tax returns.

Don’t be one of those who doesn’t claim the Earned Income Tax Credit. Find an office near you and work with a Tax Pro today.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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