What is the Earned Income Credit (EIC)?

The Earned Income Credit (EIC) is a federal tax benefit designed to help low-income working families keep more of their hard-earned money. Learn more about the EIC, including who’s eligible and how to claim it.

Are you a low-income worker who’s trying to make ends meet? If so, the Earned Income Credit (EIC) might be able to help. The EIC is a federal tax benefit designed to help working families keep more of their hard-earned money. It can put a significant amount of cash back in your pocket, which can be used to pay bills and cover other essential expenses. In this article, we’ll explain what the EIC is and how to claim it. 

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What is the Earned Income Credit?

The Earned Income Credit (EIC) is a federal tax credit available to low-income workers. It’s designed to help offset the costs of raising a family, as well as to encourage work and reduce poverty. The amount of the EIC is based on the number of children you have, your income, and your filing status. The EIC is a refundable tax credit, which means that if the credit is larger than the amount of taxes you owe, you can receive the difference in cash. 

 

The earned income credit (EIC), sometimes called the earned income tax credit (EITC), can be as much as $6,935.  

It is geared toward taxpayers with less than $59,187 of earned income. Although the credit is higher for people with qualifying children, it can also apply to some workers who do not have children.

How much is the credit worth for 2022?  

Here are the maximum amounts of this credit for 2022, based on the number of qualifying children you have: 

• $6,935 with three or more qualifying children 
• $6,164 with two qualifying children 
• $3,733 with one qualifying child 
• $560 with no qualifying children 

The EIC is a refundable tax credit. That’s good news, because it means that if the amount of the credit is more than the taxes you owe, you get a refund for the rest of the credit. Even if you don’t owe taxes, the government will refund this credit to you. 

Who is Eligible for the Earned Income Credit?  

To be eligible for the EIC, you must meet the following criteria: 

• Have earned income from a job or self-employment  
• Have a valid Social Security number  
• Meet the income requirements for the year  
• Not be a qualifying child of another taxpayer  
• Not file Married Filing Separately  
• Not file Form 2555 or Form 2555-EZ (relating to foreign earned income)  

In addition, you must have a qualifying child or meet the criteria to be considered a “qualifying relative.” A qualifying child is a dependent who lives with you for more than half the year and is a relative (such as a son or daughter) or is under age 19, or under 24 if a full-time student. A qualifying relative is a person who meets all the other requirements but does not meet the age or dependency requirements of a qualifying child.  

How to Claim the Earned Income Credit

• Even if you don’t owe any taxes, a return must be submitted. 
• You must have income from earnings, such as from a job, your own business, or union strike benefits. Retirement, investment, and disability income do not count.  

Your adjusted gross income (AGI) and your earned income must be below the following:  

If you’re married filing jointly: 

• $59,187 with more than two qualifying children, or 
• $55,529 with two qualifying children, or 
• $49,622 with one qualifying child, or 
• $22,610 with no qualifying child 

  If you’re filing single or head of household: 

• $53,057 with more than two qualifying children, or 
• $49,399 with two qualifying children, or 
• $43,492 with one qualifying child, or 
• $16,480 with no qualifying child. 

– You must be a citizen or resident alien for the entire year. 

– You, your spouse, and qualifying children must have valid Social Security numbers.  

– Your investment income must be $10,300 or less. This includes capital gains, interest, dividends, rental income, royalties, stock income, and income from other asset sales. 

How do I know if a child qualifies? 

For a child to qualify, he or she must: 

• Be a blood or adopted son, daughter, stepchild, sibling, step sibling, or grandchild, or a descendant of any of them (such as a grandchild, niece, or nephew), or an eligible foster child (placed with you by a court or authorized agency). 
• Be age 18 or under at the end of the tax year, or age 23 or under if he or she is a student. A permanently and totally disabled person qualifies regardless of his or her age. 
• Have lived with you in the U.S. for at least six months of the tax year. 
• Be younger than the person claiming them. 

If you do not have a qualifying child, you (and your spouse if filing a joint return): 

• Must be at least 19 years old at the end of the tax year; however Specified Students between the ages of 19-23 do not qualify. 18-23 years old can qualify if they are a qualified former foster youth or qualified homeless youth. (There is no age restriction if you have a qualifying child.) 
• Cannot be a dependent on another’s return. 
• Must live in the U.S. for over six months of the year (if married, both of you must live in the U.S. for over six months). (Military personnel stationed outside the U.S. are considered to live in the U.S.) 

What are the limitations of this credit?  

• Married filing separately must have a qualifying child. Married filing separately must also be legally separated or did not live with spouse for the last six months of the year.  
• A qualifying child cannot be claimed by more than one person claiming EIC. If a child meets the EIC qualifications for more than one person, then you must choose which person claims the child for the EIC. (See Special circumstances below for tie-breaking rules.)  
• You or your spouse cannot be a qualifying child of another person. If you meet the requirements as a qualifying child for someone else, regardless of whether that person claims you for the EIC, then you cannot claim the credit.  

Special circumstances 

• Child of divorced or separated parents. If the child meets EIC qualifications for both parents, then you can choose which person claims the child. If you can’t decide, then the parent whom the child lived with the longest during the year claims the child. If the child lived an equal time with each, then the parent with the highest adjusted gross income (AGI) claims the child.  
• Living together but not married. If two people live together with their child, but are not married, then either parent can claim the credit. Also, make sure that only one parent claims the child as a dependent and is filing as head of household.  

If a child meets the qualifications for more than one person OR the child is from divorced or separated parents, here are the tie-breaking rules:  

• You can agree on which person claims the child (as long as only one person claims the child). If you can’t agree, then the following rules break the tie.  
• If only one person is the child’s parent, then the parent claims the qualifying child.  
• If the parents don’t file jointly, then the parent with whom the child lived with the longest claims the child.  
• If the parents don’t file jointly and the child lived an equal time with each, then the parent with the highest adjusted gross income (AGI) claims the child.  
• If neither person is the child’s parent, then the person with the highest AGI claims the child.  

– Nontaxable combat pay. If you or your spouse earned nontaxable combat pay, you can choose to either include or exclude the full amount of this income when calculating your earned income for the purposes of the EIC.

What paperwork do I need?  

• To claim this credit, you must have either a Social Security number or a taxpayer identification number for each child. 
• To claim the EIC, you must file a tax return. You’ll need to complete Form 1040, 1040A, or 1040NR and enter the amount of your earned income credit on line 66a (Form 1040) or line 43a (Form 1040A).  
• You’ll need to supply information about your qualifying children on the tax return. This includes their names, Social Security numbers, and birthdates. You’ll also need to supply information about any other income you received during the year. If you’re eligible for the EIC and you file a joint return, you and your spouse must both supply Social Security numbers. If you’re married but filing separately, you won’t be able to claim the EIC.  

FAQs:  

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