Understanding Earned Income Tax Credits: A Comprehensive Guide

The Earned Income Tax Credit (EITC) is a valuable financial tool designed to provide relief for low- to moderate-income working individuals and families. In 2022, approximately $64 billion in earned income credits were distributed to 31 million taxpayers, with an average credit of $2,043. If you meet the eligibility requirements, you may even receive a tax refund. Here’s everything you need to know about the EITC and how it can benefit you.

How Do Earned Income Tax Credits Work?

If you qualify for the EITC, you can apply the credit directly toward your tax bill and collect any leftover amount in cash. For instance, if you owe the federal government $2,300 in taxes and qualify for an EITC of $3,733, you would receive the leftover $1,433 as a tax refund. Because the EITC is a refundable tax credit, you receive this money as a tax refund.

How Do I Qualify for the Earned Income Credit?

Eligibility for the EITC depends on your filing status and family size. Here are the basic requirements:

• Your earned income and adjusted gross income must be within defined limits.
• Your investment income cannot exceed $10,300 for the 2022 tax year or $11,000 in 2023.
• You, your spouse, and qualifying children must have valid Social Security numbers.
• You must be a U.S. citizen or resident alien for the full tax year.
• You must not have filed Form 2555 (related to foreign income).

For Single Taxpayers

If you don’t have children—or don’t have “qualifying children”—you must meet these additional requirements:

• Be older than 25 but younger than 65 at the end of the tax year.
• Have lived in the United States for more than half the year.
• Not be the dependent or “qualified child” of another taxpayer.

Who Is a “Qualifying Child”?

For the purposes of the EITC, your “child” does not have to be your biological child. They must live with you in the U.S. for more than half the year and have one of the following qualifying relationships with you:

• Son or daughter
• Stepchild
• Legally adopted child
• Foster child
• Sibling (step, half, or whole)
• A descendant of any of the above

Your qualifying child must also be younger than you and under the age of 19 at the end of the tax year—24 if they are a full-time student. A child who is permanently and totally disabled can be any age.

What Are the EITC Income Limits?

Income limits for EITC eligibility vary depending on your filing status and the number of qualifying children you claim. Here are the adjusted gross income limits for 2022 and 2023:

One important note: If you want to receive the EITC, you must file a tax return—you will not get it otherwise. This is true even if you don’t owe any taxes or aren’t otherwise required to file a return.

What Is the Maximum EITC Amount I Can Claim?

The size of your tax credit will depend on the size of your family. Here is the maximum EITC you can receive for the 2022 tax year:

• $6,935 with three or more qualifying children
• $6,164 with two qualifying children
• $3,733 with one qualifying child
• $560 with no qualifying children

For 2023, the maximum EITC credits increase as follows:

• $7,430 with three or more qualifying children
• $6,604 with two qualifying children
• $3,995 with one qualifying child
• $600 with no qualifying children

Is the Earned Income Tax Credit Worth It?

If you qualify, the EITC is worth pursuing. Whether it merely reduces your tax bill or secures you a refund, the EITC represents hundreds or thousands of dollars in available relief. Still, the IRS reports that roughly 20% of eligible taxpayers don’t claim the EITC.

If you are confused about your eligibility, many online tax programs include EITC calculations to help you puzzle this out. The IRS also offers an online EITC Assistant and live volunteer help through its Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) sites.

If you claim the EITC, your tax refund may be delayed. The IRS is required to wait until mid-February to begin issuing refunds to taxpayers who claim the EITC.

Are There Other Tax Credits Available?

Many other tax credits are available to both individuals and families. In particular, taxpayers who qualify for the EITC may want to consider the child tax credit (CTC), the additional child tax credit (ACTC), or the credit for other dependents. All three of these credits target families with similar income and qualifying characteristics. The ACTC is also partially refundable, meaning that if you qualify and the refundable portion of your credits exceeds your tax bill, you can receive the difference as a refund.

The Bottom Line

Claiming the EITC and other federal tax credits may require a bit of effort, but much of the work is math you’re already doing to file your taxes. Unlike tax deductions, which lower your tax bill indirectly by lowering your taxable income, tax credits reduce your tax bill dollar for dollar. Those tax savings, along with the potential for a refund, can help stretch your dollars farther—a welcome boost when you’re trying to make ends meet.

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