What Is the Earned Income Tax Credit?

The Federal Earned Income Tax Credit (EITC or EIC), is a federal income tax credit that provides financial help to low-income and moderate-income families. It is only available to taxpayers who have earned income from a job, self-employment, or certain types of disability benefits.

One of the most important features of the EITC is that it is refundable. That means the taxpayer will receive the full amount of the credit, even if the amount is larger than their tax liability. For example, a taxpayer eligible for a $2,500 EITC who owes $1,000 in federal taxes will still receive a refund of $1,500.

Another feature of the EITC that is often overlooked is that you can claim it for previous tax years, even if you have already filed a return for that year. If you did not know you were eligible when you filed a return for a prior tax year, you can file an amended return for that year claiming the credit.

You have up to three years from the date the return for a tax year is due to file an amended return. Because returns for the 2021 tax year were due April 18, 2022, you have until April 18, 2025, to file an amended 2022 return.

The credit is only available to qualified individuals who file a tax return, so if you think you are eligible, file an individual income tax return, even if you aren't otherwise required to do so. Most taxpayers eligible for the credit can take advantage of the Internal Revenue Service's free file service.

Who Qualifies for the Credit?

To qualify for the EITC, taxpayers must meet specific requirements. They must have:

• Income of less than the limit (explained below)
• A valid Social Security number
• U.S. citizenship or resident status
• Limited investment income

In addition, taxpayers who file as married filing separately can't claim the EITC.

EITC Income Limits

Only taxpayers with incomes under a specified threshold can claim the EITC. The number varies depending on the taxpayer's marital status and how many qualifying children they have. A taxpayer's filing status is whether they file as single, married couples filing jointly, married filing separately, or head of household.

The 2023 income limits for single and married filers to claim the EITC are:

• $17,640 ($24,210 married filing jointly) with no qualifying children
• $46,560 ($53,120 married filing jointly) with one qualifying child
• $52,918 ($59,478 married filing jointly) with two qualifying children
• $56,838 ($63,398 married filing jointly) with three or more qualifying children

The IRS has specific rules for what constitutes a qualifying child, so if you are unsure of whether a foster child or stepchild qualifies, you must check out the rules listed on the IRS's website.

How Much Is the Earned Income Credit?

The credit amount is based on your income, number of qualifying children, and tax filing status. The maximum credit amounts for 2023 are:

• $600 with no qualifying children
• $3,995 with one qualifying child
• $6,604 with two qualifying children
• $7,430 with three or more qualifying children

Investment Income Limits

If a taxpayer has investment income above a specified amount, it can disqualify them from the EITC. For 2023, the investment income limit is $11,000 or less.

Be Careful When Claiming the Credit

If you are preparing your own taxes and plan on claiming the EITC, please be sure that you qualify and that you have followed all of the rules for doing so. Because the rules for claiming the credit are complicated, the credit is often claimed by ineligible taxpayers. Even paid tax professionals often make mistakes with regard to the EITC. As a result, the IRS often reviews returns claiming the EITC to ensure taxpayer eligibility.

Other Available Credits

Taxpayers who are eligible for the EITC often qualify for other federal tax credits that can either reduce their tax bill or increase their refund amount:

• Child Tax Credit (CTC)
• Credit for Other Dependents
• Child and Dependent Care Credit

Additional Questions? Talk to a Lawyer

Claiming the EITC can be a significant addition to the complexity of your federal income tax returns. If you make a mistake, the IRS may penalize you. However, the benefits of the credit for some individuals and families make it worth seeking out the help of a local tax lawyer. 

Tax attorneys understand the IRS's rules for claiming the credit and the red flags that could result in your claim being rejected. A tax lawyer can help you claim the credits for past tax years when you may not have known about the EITC or that you qualified for it.