The Earned Income Tax Credit (EITC) also known as Earned Income Credit (EIC) is a United States Federal Program enacted in 1975. Through this program, the Government aims to promote and support work. As a result, this makes the program one of the largest anti-poverty tools in the United States.
The EITC program which was launched initially has been expanded on different occasions in 1990, 1993, 2001, and 2009. On these occasions, the taxes were reduced and increased and several credits were modified.
For the uninitiated, the EITC targets individuals and couples with low to moderate incomes. Couples with children are given a preference over those with no children. However, adults with a poor income and no children are eligible to apply under the program. Under this program, individuals get back tax credit meaning it reduces your tax as you get a refund on your paid taxes. The amount of your tax credit that you can claim depends on your earned income and your family size.
Who is Eligible to Apply?
You need to meet the following requirements to be eligible to apply for EITC:
- A valid Social Security number is required.
- You must have earned a living through wages or the operation of a business or farm.
- You must have some investment income. It should be below $10,000.
- The earned income and the investment income should meet a certain income threshold. Generally, one should earn an income under $57,414.
- Generally, you must be a US citizen or a resident alien for the entire year.
- If you meet the eligibility requirements under the special rule, you can file as married filing separately.
- You cannot be a qualifying child of someone else.
- You didn’t file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.
Some eligibility guidelines including the income threshold can change with every tax year. One should check the Internal Revenue Service’s official website for the updated eligibility terms and requirements. You will qualify to apply for the program irrespective of your relationship status. You can be single, qualifying widower, or married.
These eligibility guidelines do not apply to military members, clergy members, or taxpayers with disabilities. One cannot calculate the income in the same way as others. There are some additional rules for them, and the term ‘earned credit’ also translates differently in these cases.
You can apply for EITC if you have kids. In this case, your kid should also have a valid social security number, and a birth certificate. Other criteria that your kid needs to meet to be a qualifying child are as follows: The child must be related to you. He or she must be your biological, adopted, or foster child. Siblings, half-siblings, step-siblings, grandchildren, nieces and nephews are also eligible.
A child must be under the age of 19 to be eligible. Children under the age of 24 must be full-time students for at least five months of the year to qualify. There are no age restrictions for children who were born with life-long disability. Your child is required to live with you. He or she must spend more than half of the year in your home. The IRS does permit temporary absences. If your qualifying child is temporarily absent for any of the reasons listed below, they may still be eligible for the EITC: Hospitalization; Attending school; Serving in the military; and Detainment in a juvenile facility.
Your child is not allowed to file a joint tax return. You cannot claim the EITC if your qualifying child files a joint tax return with their spouse. You can claim the EITC in case if your qualifying child only files a joint tax return to get a tax refund on taxes withheld from their paycheck.
To understand the income qualifications, one must understand what the earned income implies. In general, if you do not have earned income, you will not be eligible for the credit. Earned income will not include unemployment benefits, any other benefits, child support, alimony, pension and interests, and dividends. According to the United States Internal Revenue Code earned income implies the income received through personal efforts. Any taxable pay including wages, salary, tips, and commissions can be counted as earned income. Self-employment or business also comes under this category.
How to Apply?
Everyone who wants to claim EITC have to file a tax return even if they do not have any pending taxes or in no need to file a return. You will need to fill in all details accurately. If the EITC claim on your tax return has errors, it will take you longer to get back the refund, or the authorities may audit your EITC claim, or they may deny all or part of the credit. It is best to avoid any errors. You can use the Qualification Assistance on the website of IRS to check your eligibility. If you have a child, make sure he/she qualifies for EITC.
The official website of IRS is resourceful which will help you to claim EITC accurately. From qualifications list, income threshold to common mistakes most people make while claiming EITC – the website is the correct source of all information.
Those who qualify for Earned Income Tax Credit (EITC) may also qualify to enjoy other tax benefits including Advance Child Tax Credit Payments, Child Tax Credit and the Credit for Other Dependents, Child and Dependent Care Credit, Education Credits, and Recovery Rebate Credit.
How to Get Help
For queries or support over phone, you can call 800-829-1040 (individuals). To get help in person, you can visit a local IRS office. You can locate one on the link here. The headquarters of the Internal Revenue Service is located at 1111 Constitution Avenue Northwest, Washington, District of Columbia, DC.
