Earned Income Tax Credit

What is Earned Income Tax Credit?

Earned Income Tax Credit or EITC is a mechanism that aims at supporting families with low to medium earnings. It is a refundable credit system that supplements individuals or families if they have been working (either self-employed or working for someone else). On qualification for EITC, one can not only reduce their taxes but also subsequently increase the tax refunds.

There have been some changes to the qualifying income limit for EITC. This means, that even if you did not qualify in the previous years, there are chances you can claim EITC this year. Along with the income limit, the maximum tax credit has also undergone some changes, allowing for higher tax credits. The primary goal of EITC is to keep families away from poverty and also encouraging more individuals and families to work.

Qualifying for EITC

In order to qualify for EITC the adjusted gross income and earned an income of a taxpayer should be below certain limits. The following are the revised limits for the year 2017 for individuals as well as joint filings for married couples.

• $15010 in the absence of qualifying children ($20600 for married joint filing)
• $39617 with one qualifying child ($45207 for married joint filing)
• $45007 with two qualifying children ($50597 for married joint filing)
• $48340 with three qualifying children ($53930 for married joint filing)

For the first category, the maximum allowed tax credit is $510. It increases to $3400 for the second category, $5616 for the third category and $6318 for the last category.

This means that an individual tax payer, without any dependents and earning less than $15010 is eligible for a maximum tax credit of $510. Similarly, a couple with three children and filing taxes jointly can seek tax credit up to a maximum of $6318.

The adjusted gross income and earned income limits for tax payers for the year 2016 were as follows:

• $14880 in the absence of qualifying children ($20430 for married joint filing)
• $39296 with one qualifying child ($44846 for married joint filing)
• $44648 with two qualifying children ($50198 for married joint filing)
• $47955 with three qualifying children ($53505 for married joint filing)

Other Criteria

There are certain other criteria that have to be met apart from the cap on income.

• You, your spouse and dependent children that you are claiming the tax for, should have a valid Social Security Number.
• You should have some form of income, it can either be self-employed or from employment.
• You should be a US citizen or a resident for at least year of tax filing.
• Or you can be a non-resident alien who is married to a US citizen or any other resident alien and opt for joint filing.
• If you are applying for tax credits, you cannot be the qualifying child of anyone else.
• Your qualifying child cannot be named in any other EITC filings.
• If you are filing EITC separately, your status cannot be married.
• For individuals who do not have qualifying children:
  • You should be more than 25 years but less than 65 years old of age.
  • Should have stayed in the United States for more than half of the years in question for tax filing.
  • Not be listed as qualifying child of anyone else.
• Form 2555 or 2555-EZ is not accepted.
• There is a cap on the investment income as well at $3450 for the year 2017, which was $3400 for the year 2016.

Before you file your tax returns, do take some time to check if you are eligible EITC or not. If you are, you can save a decent amount of money using the tax credit system.