What is an Earned Income Tax Credit & Do You Qualify for It?

Today is National Earned Income Tax Credit Awareness Day! The Earned Income Tax Credit (EITC) is the country’s largest program for working people with low to moderate income. According to the IRS, about 23 million eligible filers received the EITC as of December 2023, and the average EITC was approximately $2,541. However, millions of taxpayers are still missing out on this valuable tax credit, and the IRS reports that one out of five qualifying filers fails to claim the tax credit.  

You may wonder why someone would miss a tax credit worth up to $7,430 in tax year 2023 for a family with three or more children? Well, many people who qualify for the credit miss out on it because they are newly qualified or choose to not file a tax return because their income falls below the IRS income filing limit (for tax year 2023 it’s $13,850 for single filers and $27,700 for those married filing jointly). 

You may have experienced lower income in 2023 and may be newly qualified for EITC when you may not have been eligible before, but in order to get the credit, you have to make sure you file your federal taxes this year.

Want to know more about the EITC? Here are answers to important questions about the tax credit, and information on how you can qualify.

What exactly is the Earned Income Tax Credit?

The EITC is a refundable tax credit given to taxpayers who earn low to moderate income from a job or from being self-employed. While it may eliminate the taxes you owe, you may also receive a tax refund for the amount of your credit if the credit is more than the amount of taxes you owe since EITC is a refundable credit.

Who is eligible to claim the Earned Income Tax Credit?

Generally speaking, you may be eligible for the EITC if you meet the income limits included below and all of the following apply:

• You are a U.S. citizen or resident alien all year 
• Have a valid Social Security number by the due date of your tax year 2023 return (including extensions) 
• Must meet certain requirements if you are separated from your spouse and not filing a joint return 
• You have earned income from employment. Unemployment income doesn’t count.
• You can qualify if you have income from a home business or provide services
• You can’t file Form 2555 (relating to foreign earned income)

While you can have interest, dividends, and other investment earnings, your investment income must be $11,000 or less in 2023. But most importantly, you have to file your federal taxes in order to claim this valuable credit.

What are the income limits?

The limits are adjusted each year, and for tax year 2023, your earned income and adjusted gross income must be no more than: 

• $56,838 ($63,398 married filing jointly) with three or more qualifying children
• $52,918 ($59,478 married filing jointly) with two qualifying children
• $46,560 ($53,120 married filing jointly) with one qualifying child
• $17,640 ($24,210 married filing jointly) with no qualifying children

What is the amount of credit?

Your income and number of qualifying children will determine the actual amount of your credit. 

For tax year 2023, the maximum credits are 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

What is a qualifying child?

A child qualifies if he/she meets four tests for age, relationship, residency, and joint return as follows:

1. Age: Generally, your child must be under 19, under 24 if they are a full-time student, or any age if permanently and totally disabled.
2. Relationship: Your child must be either your son, daughter, foster child, or stepchild (including all of their respective children). Your “qualifying child” can also be your brother, sister, half brother or sister, or step-sister or brother (including all of their respective children).
3. Residency: Your child must have lived with you in the U.S. for more than half the year.
4. Joint Return: Your child must not have filed a joint return. If they did file a joint return, it should have been because they were filing for a tax refund, not because they were actually required to file.

When can I expect to receive my refund if it includes EITC or Additional Child Tax Credit?  

The IRS will begin accepting and processing tax returns on January 29, 2024. Most refunds are issued within 21 days are less of acceptance of acceptance; however, under the Protecting Americans from Tax Hikes (PATH) Act, signed into law in December 2015, the IRS cannot issue refunds that include Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) before mid-February. The IRS expects most EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards by February 27 if they chose direct deposit and there are no other issues with their tax return.

The PATH Act, which applies to all tax preparation methods, is intended to help detect and prevent tax fraud. The extended refund release also gives the IRS more time to ensure taxpayers are properly claiming the credits, so they get the refund they are owed.

The IRS encourages you to file as soon as possible so you can get closer to your tax refund!

What if I haven’t filed my taxes for a couple of years and may be eligible for EITC for prior years?

If you haven’t filed your taxes for a few years, this is a good time to file your prior tax returns since you may be eligible for EITC in those prior years. If you are due a tax refund, you have three years from the filing deadline to file your tax return for a tax refund or to claim a credit like the Earned Income Tax Credit. So if you didn’t file your 2020 taxes, you would have until May 17, 2024, to file to claim EITC. 

The IRS reports close to one billion dollars in unclaimed tax refunds every year, and many taxpayers are surprised to find that some of this money belongs to them in the form of Earned Income Tax Credit when they file previous years’ returns. Prior-year returns have to be mailed in, but TurboTax has previous years tax products so you can file previous years’ taxes. If you filed a tax return for those years, but didn’t claim the EITC and you were eligible, you will need to file an amended return for that year. 

Don’t worry about knowing EITC tax rules when you file your taxes. TurboTax will ask you simple questions about you and will calculate the tax credit if you are eligible based on your answers. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.