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What is an Earned income Tax Credit & Do You Qualify

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

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National Earned Income Tax Credit Awareness Day

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 25 million eligible filers received the EITC last year, and the average EITC was approximately $2,411. 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 $6,728 in 2021 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 2021 its $12,550 for those single and $25,100 for those married filing jointly). 

As a result of events that occurred in 2021, you may have experienced lower income 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 that 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.

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 fo your 2021 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 less than $10,000 in 2021. But most importantly, you have to file your federal taxes in order to claim this valuable credit.

Starting in tax year 2021 (the taxes you file in 2022), under the American Rescue Plan, the Federal Earned Income Tax Credit (EITC) has been expanded for workers without kids and nearly triples the maximum credit. Eligibility is also extended for a wider range of tax filers, including those who are over 65 or between the ages of 19–25.

What are the income limits?

The limits are adjusted each year, and for tax year 2021, your earned income and adjusted gross income must be less than: 

  • $51,464 ($57,414 married filing jointly) with three or more qualifying children
  • $47,915 ($53,865 married filing jointly) with two qualifying children
  • $42,158 ($48,108 married filing jointly) with one qualifying child
  • $21,430 ($27,380 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 2021 the maximum credits are as follows:

  • $6,728 with three or more qualifying children
  • $5,980 with two qualifying children
  • $3,618 with one qualifying child
  • $1,502 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?  

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 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 began accepting and processing tax returns on January 24, 2022, and anticipate mid-February for many EITC and ACTC taxpayers if they e-file with direct deposit and there are no issues with their tax returns.

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 2018 taxes, you would have until April 18, 2022, 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.

Lisa Greene-Lewis

Lisa has over 20 years of experience in tax preparation. Her success is attributed to being able to interpret tax laws and help clients better understand them. She has held positions as a public auditor, controller, and operations manager. Lisa has appeared on the Steve Harvey Show, the Ellen Show, and major news broadcast to break down tax laws and help taxpayers understand what tax laws mean to them. For Lisa, getting timely and accurate information out to taxpayers to help them keep more of their money is paramount. More from Lisa Greene-Lewis

17 responses to “What is an Earned Income Tax Credit & Do You Qualify for It?”

  1. My husband is under 65 and has earned income from self-employment. I am over 65 and on social security, therefore no earned income. We are married, filing jointly. Are we eligible for the EITC? When we use free online tax software, it shows we are, but I thought my age makes us ineligible? Thanks.

    • Hi Kate,
      There are minimum age filing requirements and dependency requirements but there is no maximum age requirement. If you are filing as; Married Filing Jointly (MFJ-No Children) the Earned income and Adjusted Gross Income (AGI) must be below $20,950. Using the Turbo Tax questions will help get the credit you are entitled.
      Hope this helps.

  2. If they say that you qualify for tax credits like EIC how do you know if it was added to your refund. Or any of the other tax breaks/credits that they said you qualify for. I have 2 dependents my daughter and her father and I made about 28,300 in 2015.

  3. Hi im a vet that get va compensation and ssdi. I have no income and got married in 2015 and I have 3 dependents can I get the eitc. Thank you in advance.

    • This is not tax advice, not an attorney. No, the eitc means earned income tax credit, key part for your situation being the earned part. Social security, pensions etc are considered unearned income. You don’t qualify for this credit, sorry.

  4. Hi I’m just wondering if it would be worth me filing if I only received unemployment for 3 months.and didn’t work the rest of the year

    • Hi, based on this article it actually states that unemployment doesn’t count towards income. So, therefore it wouldn’t count.

  5. I adopted my 2 great grandchildren in March 2015. I went through legal aid because of circumstances and only had to pay $149.00. Will I get the $13,000 child tax credit for each child as I’ve read about?

  6. Hi. I have just filled my taxes and it said I am not qualified for the child credit. My husband and I filled jointly and made about 23,000 in 2014. We have one child that was born on 9/17/2014. It said we did not qualify for the credit. Why is that? From what I have read we should qualify.

    • Hi Shelli,
      There are limits to the credit. If you don’t have any tax liability you can not take the child tax credit. Per the IRS:

      You must reduce your child tax credit if:

      The amount on Form 1040, line 47; Form 1040A, line 30; or Form 1040NR, line 45, is less than the credit. If this amount is zero, you cannot take this credit because there is no tax to reduce.
      Thank you,
      Lisa Greene-Lewis

  7. If part time student… With very low income made in 2014. Can I claim EIC and deduct student grant? If no income made only student grant can still file tax return? Thanks.

    • Hi Pat,
      A student grant would not count as income for the EIC. Earned income considered for this credit is taxable income earned from wages or tips. If you didn’t earn any income there is no reason to file your taxes. If you didn’t use all of your student grant for qualified education expenses the unused portion may have to be claimed on your taxes.
      Thank you,
      Lisa Greene-Lewis

      • Question my EIC was only 153.00 with 2 dependents I filed as head of household and my income for box 1 on my W2 was 43,484 or close

    • Hi Dede,
      It depends on your income and how much taxes you have had taken out, but with a dependent you may be eligible for credits like the EIC, the child tax credit worth up to $1,000, the dependent exemption of $3,950, and the Child and Dependent Care Credit. TurboTax will walk you through all of these tax benefits.
      Thank you,
      Lisa Greene-Lewis

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