Earned Income Credit (EIC)
What is an Earned Income Credit (EIC)?
The Earned Income Credit (EIC) is a refundable tax credit designed to provide financial support to low and moderate-income working individuals and families in the U.S. It is also known as the Earned Income Tax Credit.
Unlike standard deductions or non-refundable credits, the EIC can reduce the tax owed and potentially provide a refund beyond the taxes paid. The EIC credit is calculated based on the recipient’s earned income, marital status (married or unmarried), and number of qualifying children (zero to three or more).
The Earned Income Credit (EIC) provides additional tax benefits to individuals and families with income below certain thresholds. The amount of earned income tax credit depends on your annual income, filing status, and number of children.
As of December 2023, approximately 23 million eligible workers and families received about $57 billion in EITC (Earned Income Tax Credit). In tax year 2022, the average amount of EITC received nationwide was about $2,541. The EITC eligibility requirements affect millions of taxpayers annually and can potentially impact their tax outcomes.
Let’s dive deeper into the specifics of the Earned Income Tax Credit 2024 to help you determine if you qualify and how to claim EIC credit.
What are the Recent Changes and Updates to EIC?
The Earned Income Tax Credit has been expanded to offer more support to low and moderate-income workers. The key changes in EIC credit include broader eligibility and higher benefits, particularly for those without qualifying children.
Here’s a table comparing the key changes in the Earned Income Tax Credit between the old and the new law.
| Factor | Old Law | New Law (Starting 2021) |
| Investment Income Limit | $3,650 | $10,000 (indexed for inflation after 2021) |
| Marital Status for Separated Spouses | Not eligible for EITC if filing separately | Married but separated spouses (for more than six months) can opt to be treated as unmarried |
| SSN Requirement for Children | Children without SSNs are not considered for credit | Credit is available even if children do not have SSNs but at a reduced amount for childless workers |
| Maximum Credit (Childless EITC) | $538 | $1,502 |
| Income Eligibility Caps (Childless EITC) | $15,820 (single) / $21,710 (married filing jointly) | $18,591 (single) / $25,511 (married filing jointly) |
Who qualifies for the earned income credit?
You are eligible for EIC credit if you meet the following criteria.
1. Have earned income and file a tax return
2. Meet U.S. residency requirements
3. Have investment income below a certain limit
4. Provide valid Social Security numbers for themselves, spouse (if married), and qualifying children
5. Must not have been disallowed the credit due to prior fraud or reckless disregard of the rules
6. Fulfill age requirements:
- Workers with qualifying children: No age limit
- Workers without qualifying children: Generally 25-64, with some exceptions for former foster youth and homeless youth (18+)
7. Have income below certain thresholds, which vary based on:
- Filing status (single or married)
- Number of qualifying children
- Current tax year (thresholds are updated annually)
How to Calculate Earned Income Credit (EIC)?
Assuming you’ve already determined your eligibility for the EIC, follow these steps to calculate your credit.
1. Gather your financial information
- Your filing status (single, married filing jointly, etc.)
- Your earned income amount
- Your Adjusted Gross Income (AGI)
- Number of qualifying children (if any)
2. Calculate your earned income
- Add up all your taxable earned income (typically from W-2 forms)
- If self-employed, use your net profit from Schedule C
3. Find your potential EIC credit
- Locate the EIC Table in the Form 1040 instructions
- Find your earned income amount in the first column
- Move across to the column that matches your filing status and number of children
- The amount in this cell is your potential EIC based on earned income
4. Adjust for AGI (if necessary)
- If your AGI is different from your earned income, repeat step 3 using your AGI
- Compare the two EIC credits (based on earned income and AGI)
- Use the smaller of the two amounts as your EIC
Example 1: Unmarried Individual with No Qualifying Children
Sarah is unmarried with no qualifying children. She is 28 years old and has W-2 wages of $17,000 and interest income of $200.
1. Earned income: $17,000
2. AGI: $17,200 ($17,000 wages + $200 interest)
3. Using the EIC Table for single, head of household, or qualifying surviving spouse with no qualifying children:
- For $17,000 (earned income): EIC = $1,502 (maximum credit for childless EITC)
- For $17,200 (AGI): EIC = $1,502
Therefore, Sarah’s Earned Income Credit is $1,502.
Note: This example uses the maximum credit for childless EITC mentioned in the updated table ($1,502). Sarah’s income falls below the income eligibility cap of $17,640 for single filers with no children.
Example 2: Married Filing Jointly
John and Mary are married filing jointly with one qualifying child. John has W-2 wages of $30,000, and Mary has W-2 wages of $20,000. They also have $300 in interest income.
1. Earned income: $50,000 ($30,000 + $20,000)
2. AGI: $50,300 ($50,000 wages + $300 interest)
3. Using the EIC Table for married filing jointly with one qualifying child:
- For $50,000 (earned income): EIC = $1,950 (hypothetical value within the $9 to $3,995 range)
- For $50,300 (AGI): EIC = $1,900 (hypothetical value within the $9 to $3,995 range)
Therefore, John and Mary’s Earned Income Credit is $1,900.
Note: The income of $50,300 is below the $53,120 limit for married filing jointly with one child. The actual EIC credit would be determined by the official IRS tables for the specific tax year.
Note: These example uses EIC values for tax year 2023. Always refer to the current year’s IRS instructions for accurate figures.
How to Claim Earned Income Credit (EIC)?
The Earned Income Tax Credit (EITC) claiming procedure can be straightforward when you know what to do. Here’s a step-by-step guide to help you claim your EIC credit.
Step 1: Determine your eligibility
Use the EITC Qualification Assistant tool on the IRS website to check if you qualify based on your income, filing status, and number of qualifying children.
Step 2: Gather required documents
Collect all necessary documentation, including W-2 forms, 1099s, and any other relevant income statements. Also, gather information about your qualifying children, if applicable.
Step 3: Choose your filing method
Decide whether to file your taxes electronically (e-file) or by mail. E-filing is generally faster and more accurate.
Step 4: Complete Form 1040 or 1040-SR
Fill out Form 1040 (U.S. Individual Income Tax Return) or Form 1040-SR (U.S. Tax Return for Seniors) with your personal information and income details.
Step 5: Complete Schedule EIC (if applicable)
If you have qualifying children, fill out Schedule EIC (Form 1040) to provide information about them.
Step 6: Enter the credit amount
Input your calculated EITC amount on line 27 of your Form 1040 or Form 1040-SR.
Step 7: Double-check for errors
Review your return carefully to avoid common mistakes that could delay your refund.
Step 8: File your return
Submit your completed tax return, either electronically or by mail, to the IRS.
Step 9: Track your refund
After filing, use the “Where’s My Refund?” tool on the IRS website or the IRS2Go mobile app to track the status of your refund.
Wrapping Up
Earned Income Tax Credit provides financial assistance to low and moderate earning individuals and families. It can reduce your tax burden, increase your household income, and improve your finances. However, the credit income depends on factors like your income, number of qualifying children, and filing status. If you’re eligible, follow the steps mentioned above to calculate and claim your EIC credit.