EIC Rules: The Earned Income Tax Credit Guide
The earned income tax credit (EITC) was designed to help taxpayers who have low incomes. It is meant to reduce federal income and payroll taxes for those workers. The credit is refundable, so even if the credit’s dollar amount exceeds your income tax liability, you can still receive a refund come tax time.
It is not enough to only qualify for the EITC; a taxpayer must claim it. Sometimes the IRS will send a letter suggesting you claim the EITC if you meet the guidelines, but ultimately, it’s your responsibility to know if you are eligible and if so, to claim this credit. Learn more about the earned income credit (EIC) eligibility and rules you must abide by to claim it.
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How the Earned Income Tax Credits Work
Who gets earned income credit? Most often, parents of multiple children. By design, the EITC provides substantial benefits to working parents. If you’re seeking an EITC and filing under single status, the government provides much less support. The credit rate and maximums you are eligible for are determined by family size. The amount of credit you can claim is determined by your annual income and the number of qualifying dependents you are claiming.
This tax credit is equal to a fixed percentage of earnings, dollar for dollar, until the credit has reached a maximum. In other words, the credit is paid until your earnings reach a specific level. Once that level is reached, the credit starts to decline with each additional dollar you make until no more credit is available. In addition to lowering the amount of taxes you owe, the earned income tax credit can increase your tax refund, depending on what you qualify for.
Earned Income Credit Guidelines and Rules
The amount of credit an individual may claim depends on their annual earned income for the tax year, as well as the number of qualifying dependents. To file an EIC claim, these guidelines must be met:
You must file taxes under the proper status to receive EIC. To qualify for and claim the earned income tax credit, your earned and adjusted gross income (AGI) must not exceed a certain amount. It all depends on whether you’re filing single or jointly and the number of children you are claiming. Additionally, the requirements for the EIC state that you must:
- Have an income.
- Be a U.S. citizen or resident alien for that tax year.
- Have Social Security numbers for yourself, your spouse (if filing jointly), and qualifying dependents.
- Not have investment income exceeding $3,500.
- Not be filing a Form 2555 or 2555-EZ.
- File with a status of single, married filing jointly, head of household, or qualifying widower.
The IRS’s earned income credit guidelines state that an eligible dependent must meet age, relation, residency, and joint return requirements. An eligible dependent should be younger than 19, or 24 if they are a full-time student. The dependent child must be related to you by birth, adoption, or fostering. In any case, the taxpayer must be older than the dependent, except in cases where the dependent is permanently disabled. When it comes to residency, the dependent must have lived with you for at least six months of that tax year. When filing, your child cannot file a joint return.
The earned income credit’s child qualifications extend beyond children of your own. Other qualified dependents include brothers, sisters, half-siblings, and step-siblings. Similarly, the descendants of any of those family members can also be qualifying dependents. This includes nieces and nephews.
Despite not having any dependents, you may still be on the list of who is entitled to earn an income tax credit. Low-wage earners may still qualify for the EITC, given that you meet the requirements. You (and your spouse if you’re filing jointly) must meet all of the basic rules of EITC. In addition, you cannot be claimed as a dependent or qualified child on anyone else’s return. You must be at least 25 and under the age of 65 at the end of the tax year for which you are claiming the EITC. Finally, if your filing status is married but filing separately, you are ineligible to claim EITC.
Income Minimum and Limits
There are certain income requirements you must meet in order to claim the earned income tax credit. The table below details the maximum earned income or AGI qualifications for the EIC in 2018:
|If filing…||Zero||One||Two||Three or more|
|Single, Head of Household or Widowed||$15,270||$40,320||$45,802||$49,194|
|Married Filing Jointly||$20,950||$46,010||$51,492||$54,884|
There are also limitations that cap what you can claim based on your investment portfolio. For 2018, your investment income had to total less than $3,500. Furthermore, there is a maximum amount of credit you can receive based on your dependents. In 2018, the maximum amount of EIC could claim was:
- $6,431 with three or more qualifying children
- $5,716 with two qualifying children
- $3,461 with one qualifying child
- $519 with no qualifying children
How to Claim the Earned Income Tax Credit
Before you work on your tax return, it’s important to gather all of the required information. Having all of the information you need makes preparing your taxes a simple process, and it helps you to avoid mistakes, too. The documents required will be different for everyone, especially if you own and operate your own business. Below is a list of the documents required to claim the earned income tax credit:
- Social Security cards or some form of Social Security verification identifying all persons you may list on the return.
- Birth dates for all persons listed on the return.
- Copies of last year’s federal and state returns, if available.
- All of your income statements including W-2s and 1099s, Social Security, unemployment and other statements, such as pensions, stocks, interest and any documents showing taxes withheld.
- Income records of any business or farm you run.
- Records of expenses like tuition, mortgage interest, or real estate taxes.
- Records of expenses for your business or farm.
- Forms such as the 1095-A, 1095-B or 1095-C.
- Bank routing numbers and account numbers.
- The name, address, and Social Security or tax identification number of the caretaker of any dependent child.
When filing your tax return, it’s important to be wary of errors. Whether you’re preparing your own tax return or having someone else do it for you, you are responsible for these errors. Making mistakes can delay your tax refund or cause your EITC claim to be denied. These are some of the most common errors people make when claiming the EIC on their taxes. Be wary of mistakes like:
- Claiming a child who does not meet all the qualifications for relationship, residency age, or joint return.
- More than one person claiming the same child.
- Social Security number or last name mismatches.
- Filing as single or head of household when married.
- Over- or under-reporting income or expenses.
If you are filing for an EITC and make a mistake, there are consequences. Whether the mistake was made knowingly or accidentally, you may have to go through an audit or pay additional taxes, penalties or interest. Avoid those consequences by double-checking your return before you file.
If you need help with your tax return or filing for EITC, there are plenty of places you can turn to for help. You can find free tax help with specialists right in your own neighborhood or use a preparation service. If you were denied EITC in years past, you still may be eligible. The IRS may require you to file a Form 8862 or a Form 8862-SP next time you claim the EITC. Similarly, if you missed out on this tax credit in years past, you can claim the EITC for prior years with an amended return.
When to Expect a Refund
If you have claimed the Earned Income Tax Credit, you may experience a tax refund hold. The EITC cannot by law be refunded before mid-February, including the portion of the refund that is not associated with the EITC. The earliest time that refunds will be available is at the end of February — if you chose direct deposit. If there are questions or concerns about your tax return or the IRS needs more information, some tax refunds may take longer.
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This post was updated October 23, 2019. It was originally published October 23, 2019.