What is the Earned Income Tax Credit?

Tax Deductions and Credits

The earned income tax credit (EITC) provides additional funds to people who, despite working, receive low to moderate incomes. Easy enough, right? Unfortunately, there are countless rules and exceptions to those rules in determining eligibility for the EITC. Let’s get right to simplifying it for you.

Earned Income Tax Credit
Earned Income Tax Credit

Earned Income Tax Credit Eligibility

To qualify for the EITC, you must have a Social Security Number, work for pay, and earn less than a certain dollar threshold (amounts detailed later).  There are many other requirements including USA citizenship/resident alien status and limitations on investment and foreign income, but those are typically not issues for people otherwise qualified for the EITC.

Work for Pay

Unemployment income doesn’t help you qualify for the EITC. Neither does bank interest.  In order to receive any money via the EITC, you must work. You can have a traditional job as an employee or you can be your own boss and earn money from self-employment.  But one way or another, you’ve got to earn some money in order to qualify for the EITC.

Income Limits

For the 2011 tax year (the tax return you’re about to file), your earned income (what you receive due to your work), and your adjusted gross income (AGI, the sum total of all of your earnings less certain deductions) must be less than:

  • $43,998 ($49,078 married filing jointly) with three or more qualifying children
  • $40,964 ($46,044 married filing jointly) with two qualifying children
  • $36,052 ($41,132 married filing jointly) with one qualifying child
  • $13,660 ($18,740 married filing jointly) with no qualifying children

Qualifying Children

As you can see above, the relevant income limits are much more generous if you take care of at least one qualifying child.  Your child qualifies if he or she meets all of the following conditions:

  • Has a valid Social Security Number
  • Is your child (natural, adopted or foster), grandchild, sibling, step-sibling, half-sibling, niece, or nephew
  • Younger than you and younger than 19, unless a student (in which case your child must be less than 24), or totally and permanently disabled (in which case there is no age limit)
  • Lives with you in the United States for more than half of the year
  • The child doesn’t file a joint tax return.

For more information or to help determine your eligibility for the Earned Income Tax Credit, use EITC Finder app by Intuit.

Claiming the EITC

The EITC Finder  app and TurboTax can help you claim the Earned Income Tax Credit.  Note that unlike many other tax credits, the EITC is a refundable tax credit. This means that the EIC can not only eliminate any income tax liability you might otherwise face but, to the extent your tax credit exceeds your liability, you can pocket the difference. It is for this reason that the EITC is one of the most important tax considerations.

Make sure to review the table above and use the EITC Finder app– if your income is below the relevant threshold, .  It just might mean an extra $2,000 or more in your pocket. Few other tax maneuvers can earn you that kind of cash!