What is the earned income tax credit?
Taxes are a huge burden on Americans of all income levels, but they can be even more of a problem for low-income people who need every dollar they can get their hands on. Fortunately, the IRS has made an extremely lucrative tax credit available to low-income households. It’s called the Earned Income Tax Credit, or EITC, and it could make you money.
How Tax Credits Work
A tax credit is a dollar-for-dollar reduction in your tax liability. If you owe the IRS $ 1,000 and claim a $ 1,000 tax credit, you erase the $ 1,000 you owe. Some tax credits are non-refundable, so they can only reduce your tax payable to $ 0. But refundable tax credits will earn you money even if you don’t owe anything.
How the EITC works
The EITC is a refundable tax credit that will earn you money even if you don’t owe any taxes. To apply for the EITC, you must file a tax return, even if your income is low enough that you don’t have to. You must also have earned income. And, your filer status must be single, married, joint filer, head of household, or eligible widow. If you are married and file a separate tax return, you will not be eligible.
EITC Income Limits and Value for 2020
Eligibility for EITC depends on your income combined with the number of eligible children you have in your household. Here’s what those thresholds look like for the 2020 tax year (i.e. the tax return you file in ):
Income statement status |
No eligible child |
1 eligible child |
2 eligible children |
3 or more eligible children |
---|---|---|---|---|
Single, head of family or widower |
$ 15,820 |
$ 41,756 |
$ 47,440 |
$ 50,954 |
Married spouse filing |
$ 21,710 |
$ 47,646 |
$ 53,330 |
$ 56,844 |
During this time, the value of the EITC will depend on the number of eligible children in your household. For the 2020 tax year, here’s what the EITC could earn you:
Number of eligible children |
Maximum EITC value |
---|---|
0 |
$ 538 |
1 |
$ 3,584 |
2 |
$ 5,920 |
3 or more |
$ 6,660 |
EITC Income Limits and Value for 2021
Income ceilings for the EITC tend to change from year to year. This is what they look like for the tax year 2021 (for which you are filing a return in 2022):
Income statement status |
No eligible child |
1 eligible child |
2 eligible children |
3 or more eligible children |
---|---|---|---|---|
Single, head of family or widower |
$ 15,980 |
$ 42,158 |
$ 47,915 |
$ 51,464 |
Married spouse filing |
$ 21,920 |
$ 48,108 |
$ 53,865 |
$ 57,414 |
In the meantime, for tax year 2021, here’s what the EITC could get you:
Number of eligible children |
Maximum EITC value |
---|---|
0 |
$ 543 |
1 |
$ 3,618 |
2 |
$ 5,980 |
3 or more |
$ 6,728 |
The EITC and tax evasion
Unfortunately, the EITC has been the subject of tax evasion in the past, so the IRS is taking steps to guard against it. As such, tax filers who apply for the EITC early in the tax filing season are typically subject to tax refund delays. But that’s no reason for not claim. If you’re eligible for the EITC, you might be waiting for a big check from the IRS, so even if you don’t normally file a tax return, it’s worth seeing if that makes sense to you. If you have a lower income, you can usually use the Free File Service so your taxes don’t cost you a dime.