Taxpayers who earn low to moderate income may find some relief at tax time with the Earned Income Tax Credit (EITC), a refundable credit that seeks to help working families. The EITC works by reducing the amount of taxes you have to pay, and even if you don’t have any tax liability, you may receive the remainder of the credit as a refund. Each year, approximately 6 million people, of which half are children, are kept out of poverty because of the Earned Income Tax Credit.
Even those who file single and have no children may still qualify for the EITC. As long as you, your spouse if you file a return together, and all qualifying children have a valid Social Security Number then you can check your eligibility for the EITC. Each year, only around 80% of eligible Americans claim the EITC, meaning many miss out on the extra savings.
Determining Your Credit Amount
You can use the eTax.com Earned Income Tax Credit Calculator to help determine the amount of your credit. You just easily input your filing status, number of qualifying children, and your adjusted gross income. If you are married, you need to file a joint return to claim the EITC, as those who file separately are not eligible.
For the 2016 tax year, the maximum credit amount you can claim of the EITC is dependent on how many qualifying children you have. The following lists the maximum credit you may qualify for in 2016:
- $506 with no Qualifying Children
- $3,373 with 1 Qualifying Child
- $5,572 with 2 Qualifying Children
- $6,269 with 3 or More Qualifying Children
Claiming the Credit
If you decide to e-file your return, you’re in a good position. eTax.com’s software will automatically check your eligibility for the Earned Income Tax Credit, and calculate the accurate amount of the credit. You’ll just input the correct date and the software will automatically fill out the forms for you.
The Earned Income Tax Credit
This refundable credit applies to working taxpayers who earn moderate to low salaries. Its purpose is to be supplementary to your earned income, whether you made the wages through self-employment or as an employee of someone else. Those who qualify for the credit generally decrease their tax liability and increase the amount of your refund. Through the Earned Income Tax Credit, working families can retain a larger portion of their money they earned.
This year, 2016, the income limits have been modified, so it’s important to check if you qualify. Because of this modification, some taxpayers who haven’t qualified in the past may be eligible to claim the credit this year. The credit amount has also increased.
Don’t Miss Out
Too many taxpayers don’t claim the EITC even though they qualify. The national statistic suggests that 1 in every 5 eligible taxpayers don’t claim the credit. Often, the groups who most overlook their eligibility include:
- Self-employed
- Rural residents
- Grandparents who are guardians to their grandchildren
- The recently divorced
- Those who have become recently unemployed
- The childless
- Those who receive disability benefits
Be sure you don’t miss out on extra money. Ensure that you check your eligibility for the credit when you prepare your return. If you use tax filing software, it may automatically check your eligibility and determine the appropriate amount of the credit.
Don’t forget: Even those without children may qualify. Also, even if you don’t owe income tax, you may still get some of the EITC as a refund, as long as you file a return.
Income Limits
For 2016, taxpayers must make less than the listed amounts per qualifying child to the claim the EITC. The credit is not available to taxpayers with an adjusted gross income of:
- $14,880 with no Qualifying Children ($20,430 if married filing jointly)
- $39,296 with one Qualifying Child ($44,846 if married filing jointly)
- $44,648 with two Qualifying Children ($50,198 if married filing jointly)
- $47,955 with three or more Qualifying Children ($53,505 if married filing jointly)
There are six additional requirements that a taxpayer has to pass in order to be eligible to claim the credit:
- You must have a Social Security Number (this includes your spouse if you file jointly and any qualifying children you claim)
- You need to have earned income
- You can’t file a separate return from your spouse
- You must be a U.S. citizen, resident alien, or a nonresident alien married to a us citizen (in which you file a joint return.
- You can’t be another taxpayer’s qualifying child
- Your qualifying child cannot be claimed by anyone else
Taxpayers who do not have a qualifying child must meet even more qualifications:
- Be older than 25 years of age, but younger than 65 by the end of the tax year
- Live over half of the year in the United States
- Not be a qualifying child of another taxpayer claiming the EITC
- Can’t file Form 2555 or Form 2555-EZ (foreign Earned Income}
- Investment income must be less than $3,400 for the year.
The IRS reports that single workers without qualifying dependents are the largest group of taxpayers who don’t claim the EITC when they are eligible for it. So even if you aren’t married, and don’t have any children, you should check to see if you can claim the EITC. If you were between the age of 25 and 65 on the last day of the year, and you earned income subject to the limits listed, it’s possible you may qualify for the EITC.
Earned Income
Any money you are paid for rendering services, regardless of if you work for someone else or are self-employed, can be considered earned income. Earned income can include:
- Salaries
- Wages
- Tips
- Commissions
- Royalties
- Self-employment earnings
- Gross pay made as a statutory employee
- Jury duty pay
- Union benefits
- Long-term disability benefits received before retirement age
- Nontaxable combat pay (A special EITC rule applies)
Alimony, child support, unemployment benefits, Worker’s compensation, Social Security benefits, Supplemental Security Income (SSI), retirement income, pension payments, Veteran’s Administration benefits, annuities, interest income, dividends, capital gains, disbursements from trusts, lottery and gambling winnings, gifts, casino tribal payments, and public assistance funds are not counted toward your earned income.
How Much Will You Get?
The Earned Income Tax Credit is worth more if you have qualifying children. Depending on the amount of children you have, the credit varies. In 2016, taxpayers can expect to receive up to the following amounts:
Qualifying Children Max Credit Amount
None $506
One $3,373
Two $5,572
Three $6,269
The EITC can get confusing, but with special Earned Income Tax Credit calculators and e-filing software, figuring out the amount of your credit is easy. Simply begin preparing your return, and our system will determine your credit.
Special Rules for the EITC
In some cases, certain taxpayers are entitled to special rules:
Members of the Military
Armed forces members do not have to include nontaxable pay, like combat pay, in their earned income. They can exclude it from their income when calculating the EITC, but they also have the choice to include it, as it may increase the amount of their credit.
Members of Clergy
Taxpayers who work as clergy do not have to include housing allowance in their taxable income, but they are required to report it as self-employment net earnings. Because of this clergy members should include rental costs or housing allowance, in EITC calculations.
Those Receiving Disability
Disability retirement payments are earned income if you receive them before you reach minimum retirement age. Minimum retirement age is the earliest you are able to receive a pension had you not become disabled. Once you reach minimum retirement age, disability payments become taxable pension payments, and therefore can’t be considered earned income. Social Security Disability Insurance and Private disability insurance payments are not considered earned income when you calculate the EITC.
Adopted Children
Did you adopt a child during the tax year? If so, your child may not yet have a Social Security Number, and you may only have an Adoption Taxpayer Identification Number to use when you file your tax return. The EITC requires a Social Security number for each qualifying child, so you are unable to use the Adoption Taxpayer Identification number to claim the EITC. However, you may file an amended return once a SSN has been assigned to the child.
State and Local EITC
Twenty-one states and the District of Columbia offer their own version of the EITC, and New York City and Montgomery County, MD have local earned income tax credits. Just like with the federal credit, our software can help you determine if you qualify for a state or local credit.
The following states and localities have an Earned Income Tax Credit
- Delaware
- District of Columbia
- Illinois
- Indiana
- Iowa
- Kansas
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Montgomery County, Maryland
- Nebraska
- New Jersey
- New Mexico
- New York
- New York City, NY
- Oklahoma
- Oregon
- Rhode Island
- Vermont
- Virginia
- Wisconsin
When you file your tax return electronically, use the filing software to your benefit and let it automatically determine your eligibility for federal, state, and local EITC. If you qualify, the program will calculate your exact credit amount and generate all the necessary forms to claim the credit.
