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.