What is earned income tax credit?

Answer by Wray Rives:

The Earned Income Tax Credit, EITC, is a benefit for working people with low to moderate income. To qualify, you must meet certain requirements and file a tax return, even if you do not owe any tax or are not required to file. EITC reduces the amount of tax you owe and may give you a refund.

To qualify for EITC you must have earned income from working for someone or from running or owning a business or farm and meet basic rules. You must either meet rules for workers without a qualifying child or have a child that meets all the qualifying child rules.

Qualification for EITC depends on filing status, number of children and income. (2014 amounts shown here)

Single, Head of Household or Widowed
# of Children-Income Limit
0-$14,590
1-$38,511
2-$43,756
3 or more $46,997

Married Filing Jointly
# of Children-Income Limit
0-$20,020
1-$43,941
2-$49,186
3 or more-$52,247

Income limits apply to both earned income and adjusted gross income.

Investment income must be no more than $3,350 for the year.

The maximum amount of credit for Tax Year 2014 is:

  • $6,143 with three or more qualifying children
  • $5,460 with two qualifying children
  • $3,305 with one qualifying child
  • $496 with no qualifying children

Qualifying Child Rules

Your child must have a Social Security Number that is valid for employment and must pass all of the following tests to be your qualifying child for EITC:
 
Relationship

  • Your son, daughter, adopted child, stepchild, foster child or a descendent of any of them such as your grandchild
  • Brother, sister, half brother, half sister, step brother, step sister or a descendant of any of them such as a niece or nephew

Age

  • At the end of the filing year, your child was younger than you (or your spouse if you file a joint return) and younger than 19
  • At the end of the filing year, your child was younger than you (or your spouse if you file a joint return) younger than 24 and a full-time student
  • At the end of the filing year, your child was any age and permanently and totally disabled

Residency

  • Child must live with you (or your spouse if you file a joint return) in the United States for more than half of the year

Joint Return

  • The child cannot file a joint return for the tax year unless the child and the child's spouse did not have a separate filing requirement and filed the joint return only to claim a refund.

What is earned income tax credit?