If you missed Part 1 of our #TaxCreditCollection Series outlining the Child Tax Credit, click here.
Now, in Part 2, let’s take a closer look at the Earned Income Tax Credit, how much it is worth, and who is eligible for it.
What Is The Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a refundable IRS tax credit intended for working individuals and couples who are at either low or moderate income levels. In the case of this tax break, earned income is considered income that a taxpayer makes from an outside source – such as an employer – or through a small business or farm.
Like most tax credits, the EITC reduces the amount of tax you owe and may be worth enough to help you get a refund when you claim it.
How Much Is The Earned Income Tax Credit Worth?
The value of the EITC depends on several factors and can be worth anywhere from a few hundred dollars up to several thousand dollars.
The minimum amount of the credit is for individual filers with no qualifying children.
The maximum amount of the credit is available to joint filers who claim at least 3 qualifying children as dependents on an income tax return.
The maximum value of the credit for tax year 2016 is $6,269.
See below for a breakdown of how much the credit is worth based on qualifying children and income levels.
Who Can Claim The Earned Income Tax Credit?
The EITC can significantly benefit taxpayers who have qualifying children because there is no age restriction for these individuals to claim the credit. Tax filers who do not have a qualifying child must be between 25 and 64 years old to qualify. The only tax-filing status the credit does not cover is for taxpayers who are married and file separate returns.
Adjusted gross income (AGI), earned income, and investment income are all factored into the eligibility of the EITC.
No Qualifying Children – If you have no qualifying children, your earned income – and adjusted gross income – cannot exceed $14,880 or $20,430 for joint filers. Your maximum credit is $506.
One Qualifying Child – If you have one qualifying child, your earned income – and adjusted gross income – must be less than $39,296 or $44,846 for joint filers. Your maximum credit is $3,373.
Two Qualifying Children – If you have two qualifying children, your earned income – and adjusted gross income – cannot exceed $44,648 or $50,198 for joint filers. Your maximum credit is $5,572.
Three or More Qualifying Children – If you have three or more qualifying children, your earned income – and adjusted gross income – must be less than $47,955 or $53,505 for joint filers. Your maximum credit is $6,269.
What Is A Qualifying Child?
Your child must meet the following tests to be considered a qualifying child for purposes of claiming the EITC:
- Relationship: He or she must be your own child, adopted child, stepchild, foster child, sibling, half-sibling, step-sibling, or a descendant of any of these individuals, such as a grandchild or nephew
- Age: He or she must be younger than you or your spouse and either under the age of 19 or a full-time student under age 24 at the end of tax year 2016, younger than the age of a taxpayer who can claim the EITC, or any age if permanently disabled.
- Residency: The child must have lived with you in the U.S. for more than half of 2016.
- Joint return: Your child must not have filed a joint tax return with a spouse. If your child filed a joint return, your child and his/or her spouse must have filed such a tax return only to claim a refund and were not required to file a return.
Get more advice on IRS tax credits for which you may qualify by teaming up with 1-800Accountant today. Call 1-800-222-6868, or go to www.1-800Accountant.