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Earned Income Tax Credit: The Basics

By Dan Caplinger – Updated Feb 15, 2017 at 11:39AM

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The Earned Income Tax Credit is extremely useful to lower-income taxpayers. Find out what you need to know.

Tax credits are a great way to pay less in taxes, and the Earned Income Tax Credit is especially useful for lower-income taxpayers. But how does it work?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through the basic elements of the Earned Income Tax Credit. He notes that the credit is available to low- and middle-income taxpayers, with credits that can exceed $6,000 for those with three or more children who are 18 or younger or are full-time students and 23 or younger, and maximums of $5,372 apply for those with two children, $3,250 for those with one child, and $487 for those with no children. But the idea of earned income is essential for the credit, with only those who earn wages, salary, tips, self-employment income, or other income from work eligible for the credit. Dan also points out that phaseouts apply, with reduced credits available up to roughly $38,000 to $46,000 for single filers with children or $14,000 for those with no children.

To learn more about eligibility, Dan recommends visiting the IRS website and using the Earned Income Tax Credit Assistant, which can run you through the specifics for your situation.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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