What Is the Earned Income Tax Credit?

The Earned Income Credit (EIC) is a refundable tax credit for low to moderate-income families. The credit is intended to help those families offset the burden of Social Security taxes and provide them with an additional incentive to keep working. Families that qualify for the EIC can reduce the amount of taxes they owe. Because the credit is refundable, families can even receive money back from the federal government if the amount of the credit exceeds the amount of taxes owed.

Who Qualifies for the Credit?

The credit applies to taxpayers with earned income below a certain amount. To qualify for the EIC, taxpayers must meet certain rules based on income, filing status, citizenship, and investment income. The credit is only available for taxpayers with:

• Qualifying income
• A valid Social Security number
• U.S. citizenship or resident status
• Limited investment income

You also cannot file as "married filing separately" if you would like to receive the earned income credit.

EIC Income Limits

There are limits on the amount of earned income a taxpayer can have to qualify for the refund. The number varies according to the number of qualifying children a person or couple has. There are several rules for what constitutes a “qualifying child," so be sure to read the IRS' “Qualifying Child Rules" for more information.

The 2020 income limits for the EITC are:

• $50,954 ($56,844 married filing jointly) with three or more qualifying children
• $47,440 ($53,330 married filing jointly) with two qualifying children
• $41,756 ($47,646 married filing jointly) with one qualifying child
• $15,820 ($21,710 married filing jointly) with no qualifying children

How Much Is the Earned Income Credit?

The credit available is based on a table using your income, number of qualifying children, and filing status. The maximum credit amounts for 2020 are:

• $6,660with three or more qualifying children
• $5,920 with two qualifying children
• $3,584 with one qualifying child
• $538 with no qualifying children

Investment Income Limits

Low and middle-income workers generally don't have a lot of investment income. If a worker does have investment income over a certain amount, it can disqualify them from the EIC. For 2020, the investment income limit to qualify is $3,650 or less.

Tax Law Answers and Tax Advice

Credits and deductions change regularly and it is important to stay up-to-date on tax law changes that impact you. For tax law advice and help dealing with tax issues, contact an experienced tax attorney for answers.