Understanding the Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is one of the most beneficial tax credits for families with low or moderate combined incomes. It puts an average of $2,043 back in the hands of eligible workers and families.

About 31 million people applied for and received the credit in 2022, according to the IRS. But many qualified taxpayers still don’t claim it, potentially missing out on thousands of dollars at tax time. Here’s what you should know about the EITC.

What Is the Earned Income Tax Credit?

The earned income tax credit, also referred to as the earned income credit, is a refundable tax credit. It was conceived in 2020 as a “work bonus plan” to supplement the income of certain taxpayers with low to moderate earnings.

The EITC reduces the amount of tax owed on a dollar-for-dollar basis. This means that qualifying taxpayers can reduce their tax bills by the corresponding credit amounts. Generally, the less you earn, the larger the credit you qualify for. In addition, you can claim the EITC whether you’re married, single, or have children or not.

How Much Can I Get With the EITC in 2023?

The EITC is adjusted to account for inflation each year. The earned income tax credit for the 2023 tax year will run from $600 to $7,430, depending on earned income, marital status, and the number of children.

Here are the EITC limits for 2023:

• No children: $600 EITC limit for a single, widowed, or head of household filer earning $17,640 or a married couple filing jointly earning $24,210.
• 1 Child: $3,995 EITC limit for a single, widowed, or head of household filer earning $46,560 or a married couple filing jointly earning $53,120.
• 2 Children: $6,604 EITC limit for a single, widowed, or head of household filer earning $52,918 or a married couple filing jointly earning $59,478.
• 3 or More Children: $7,430 EITC limit for a single, widowed, or head of household filer earning $56,838 or a married couple filing jointly earning $63,398.

Keep in mind that your earned income includes salaries, job wages, tips, self-employment income, union strike benefits, employer-based disability benefits, and gross income received as an independent contractor. Income such as child support, alimony, social security benefits, retirement income, and unemployment benefits does not qualify for the EITC.

Who Qualifies for the Earned Income Tax Credit?

To qualify for the EITC in 2023, you must have worked and earned income under $63,398. Other eligibility rules and requirements include:

• Your investment income must be less than $11,000. Investment income includes capital gain distributions, taxable interest, and tax-exempt interest.
• You must be a U.S. citizen or resident alien
• Have a valid Social Security number
• You must not have to file Form 2555 to claim the Foreign Earned Income Exclusion
• Statuses allowed during filing include single, head of household, married filing jointly, qualifying surviving spouse, and married filing separate
• You can qualify for the EITC if you’re separated from your spouse. However, you can’t file a joint tax return and must live with your child for more than six months. You must also not have lived under the same roof with your spouse for the last six months, or you and your spouse have a separation agreement.
• If you’re claiming the EITC without children, you or your spouse must be at least age 25 but under age 65

The earned income tax credit has special qualifying rules for clergy members, military members, and individuals with disabilities or who have children with disabilities.

The Earned Income Tax Credit Is an Important Anti-Poverty Tax Benefit

The EITC allows eligible low-wage workers to move above the poverty line by supplementing their income. The amount of credit rises with earned income until the maximum is reached and then phases out at higher income levels.