Table of Contents
- 1 What is the Earned Income Credit (EITC)?
- 2 How Does the Earned Income Credit Work?
- 3 What is the Maximum Earned Income Credit Amount?
- 4 How to Calculate Your Credit Amount
- 5 Who Qualifies for the Earned Income Credit?
- 6 Earned Income Tax Table
- 7 What is Earned Income?
- 8 Is the Earned Income Credit Refundable or Non-Refundable?
- 9 Earned Income Credit Worksheet & Calculator
- 10 Fraudulent Claims
- 11 How to Claim the Earned Income Credit
- 12 How to Maximize Your Tax Refund!
What is the Earned Income Credit (EITC)?
In an effort to help individuals with low to moderate income and to reduce poverty, the United States provides a program called the “Earned Income Credit” (EIC). This program is designed to aid individuals who work for a living but earn low income. A qualifying individual can claim a credit from their tax return which can offset tax liability and result in a refund. This credit has helped families for years.
The Earned Income Credit was passed in 1975 in an effort to reduce poverty and assist those who work to provide for their families but earn lower income levels. It’s often criticized because the credit discourages individuals from earning higher incomes since the credit phases-out as you earn more.
The earned income tax credit is available to claim for the 2019, 2020 tax season. The IRS estimates that about 15% of eligible individuals do not claim this tax credit.
How Does the Earned Income Credit Work?
The EIC provides support for low and moderate income working parents (with qualifying children) in the form of tax credits. The tax credit is not as beneficial for individuals without children but not having children does not disqualify you from the credit. Individuals receive a tax credit that can be claimed on Form 1040 which is a percentage of the individual’s earnings up to a certain maximum limit.
What is the Maximum Earned Income Credit Amount?
The IRS has set these maximum table limits you can get for tax year 2019:
- $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 Calculate Your Credit Amount
The Dependents Tax Credit Calculator will give you an accurate view of how much you could be entitled to. Just answer some simple questions regarding your income and your living circumstances and you’ll get a readout on how much you may be eligible for.
Who Qualifies for the Earned Income Credit?
Although the Earned Income Credit is available for all working individuals, it greatly benefits those with children. In order to qualify an individual must:
- Have a valid social security number. All members of the family must have a social security number to qualify.
- File under the following filing status:
- Married filing jointly
- Qualifying wife or widower
- Head of household
- Have less than $3,400 of investment income for the tax year.
- Not file a Foreign Earned Income Form 2555 or Foreign Earned Income Exclusion
- Have earned income and adjusted gross income within the IRS limits. See the Earned Income Tax Credit table below to see if you qualify for the income phase-out limits.
Earned Income Tax Table
The IRS provides an EIC table/chart which can used to determine how much credit you can claim on your tax return. This earned income tax credit table can be found below:
To calculate the amount of earned income credit you can claim, simply find the row that matches that amount of earned income in the first 2 columns of the table to your filing status and the number of qualifying children you claim on your tax return.
The credit is based on a percentage of your earned income but also starts to phase-out as you increase your income. The credit also increases as the number of children claimed on your tax return increases.
|Dependents||Maximum Credit||Phase out limits. Maximum Adjusted Gross Income|
What is Earned Income?
Earned income is defined as the income you earn working for an employer or self-employed. Examples of earned income are salaries and wages, royalties, commissions, profits from your business, self-employment income and many other types of income. Some types of incomes that are excluded from “earned income” are child support or alimony, social security benefits, unemployment benefits, pension and retirement income, interest income and many other types of income which are not “earned” from working.
Is the Earned Income Credit Refundable or Non-Refundable?
The earned income credit is a “refundable credit”. Refundable credits provide the most benefit because if the tax credit is larger than the tax liability on your tax return, it will result in additional refund of the difference. Non-refundable tax credits can only offset your tax liability to $0 but these credits do not result in a refund of the excess.
Earned Income Credit Worksheet & Calculator
The Earned Income Tax Credit Worksheet can be used to calculate your eligibility and how much credit you qualify for. The worksheet can be found in the instruction booklet for IRS Form 1040.
There is also an Earned Income Credit Calculator to help you figure out your Earned Income Credit amount.
It’s important to full understand the qualification and apply for the credit accordingly. An individual will be disallowed the earned income credit if they claim when not eligible due to “reckless or intentional disregard of the EIC rules”. Making fraudulent claims for the credit can disallow an individual for 10 years.
Online tax software does all the hard work for you by identifying and claiming the earned income credit, putting the numbers on the right form, and then computing just how big your refund will be.
How to Claim the Earned Income Credit
You must claim the Earned Income Credit with your Federal Individual Income Tax Return. You will need to attach a Schedule EIC to the Federal Income Tax Return in order to claim the credit.
Many families benefit from this program which provides them with financial aid. Online tax filing makes it easy to claim the earned income tax credit and maximize your tax refund.
How to Maximize Your Tax Refund!
|Get a Bigger Tax Refund with H&R Block|