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Do I Qualify for the Earned Income Tax Credit?

By Maurie Backman - Updated Jun 23, 2017 at 12:08PM

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If you’re eligible, this valuable credit can reduce your taxes and increase your tax refund.

There's a reason an estimated 45% of Americans don't pay federal income taxes. Thanks to a number of available tax credits, many low-income households are able to whittle their tax liabilities down to $0 or even below. If you're a lower earner, it pays to see whether you're eligible to claim the Earned Income Tax Credit -- because if you are, it could put up to $6,318 back in your pocket this year.

What is the Earned Income Tax Credit?

The Earned Income Tax Credit, or EITC for short, is a credit designed to offer low-income households some much-needed tax relief. As a reminder, tax credits are generally more valuable than tax deductions because they reduce your tax liability dollar for dollar, whereas deductions simply exempt a portion of your income from taxes. For example, if your effective tax rate is 15% and you claim a $1,000 deduction, you'll reduce your taxes by $150. But if you claim a $1,000 tax credit, you'll knock that full $1,000 directly off your tax bill.

Pen hovering over the refund line on a tax form

IMAGE SOURCE: GETTY IMAGES.

You'll need to meet specific criteria in order to claim the EITC. First, you'll need to have some earned income from either a job or a business you own, and your tax filing status will need to be single, married filing jointly, head of household, or qualifying widow. You'll also need to make sure your investment income for the year doesn't exceed $3,450.

Additionally, to qualify for the credit, your income must fall within a certain limit, which is based on the number of qualifying children you have in your household. Now keep in mind that a qualifying child doesn't have to be a biological child. If you care for a grandchild or younger sibling under 19 years of age, you can count that child as long as he or she lives with you more than 50% of the year.

Here's what the current EITC income limits look like based on the number of qualifying children you're able to claim :

Tax Filing Status

No Qualifying Children

1 Qualifying Child

2 Qualifying Children

3 or More Qualifying Children

Single, head of household, or widowed

$15,010

$39,617

$45,007

$48,340

Married filing jointly

$20,600

$45,207

$50,597

$53,930

DATA SOURCE: IRS.

If you do decide to pursue the EITC, be careful about the number of qualifying children you factor in. The IRS frequently comes across filers who claim children that don't actually qualify, or who have been claimed by another tax filer on a separate return. Such mistakes could cause the IRS to deny your EITC claim or delay your refund while it further investigates your return, so list your qualifying children judiciously.

What do you stand to gain?

The value of the EITC will depend on your income level coupled with the number of qualifying children in your household. Here's a snapshot of what the credit might be worth to you:

Number of Qualifying Children

Maximum Value of EITC

0

$510

1

$3,400

2

$5,616

3

$6,318

DATA SOURCE: IRS.

Also keep in mind that unlike most tax credits, the EITC is refundable. This means that if it reduces your tax liability to a number below $0, you'll get a check for the difference. Back in 2014, the average claimant received over $2,400 thanks to the EITC.

You may have to wait for that refund

While the EITC could make a huge difference for you financially, if you claim the credit this year, you may have to wait a bit longer for your refund. Thanks to the PATH Act, which was passed in 2015, the IRS cannot issue refunds to taxpayers who claim the EITC prior to Feb. 15. In fact, an estimated 40 million low-income families will have their refunds delayed this year as the IRS ramps up its efforts to prevent EITC fraud.

Of course, an overdue refund is far better than no refund at all, so if you're a lower earner, it pays to see whether you qualify for the EITC. Surprisingly, an estimated 20% of eligible filers fail to claim this crucial tax credit, but if you meet the requirements, you could get a huge dose of tax relief this season.

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