The earned income tax credit is one of the most valuable credits in the tax laws, helping millions of families save thousands of dollars each year. Yet there are complex rules that govern the credit, and only some taxpayers qualify to take it. Each year, the income limits that restrict the use of the credit and the maximum amount of credit that you can claim change, and there's also a limit on the amount of investment income you're allowed to have. Below, we'll go through these limits for 2018 with an eye toward showing you whether you're likely to qualify for this lucrative tax break.
What the earned income tax credit is designed to do
The purpose of the earned income tax credit is to offer tax savings to workers with relatively modest incomes. Despite the fact that the income limits on eligibility extend well into what most would consider to be the middle class, the largest credits are reserved for those with incomes significantly below the upper limits.
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How much income can I make and still claim the credit?
Whether you can claim the credit depends on your income, your filing status, and how many qualifying children you have. The table below has the income limits for 2018. If you make more than these amounts, then you won't be able to claim the earned income credit.
|
Filing Status |
Income Limit if No Children |
Income Limit if 1 Child |
Income Limit if 2 Children |
Income Limit if 3+ Children |
|---|---|---|---|---|
|
Single, head of household, or widowed |
$15,270 |
$40,320 |
$45,802 |
$49,194 |
|
Married joint |
$20,950 |
$46,010 |
$51,492 |
$54,884 |
Data source: IRS.
What's the maximum amount of credit I can claim?
Maximum claiming amounts vary by family size. For those with three or more children, the maximum earned income tax credit for 2018 is $6,431. Families with two qualifying children have a $5,716 maximum credit amount, while those with one qualifying child face a limit of $3,461. The credit for those with no children is much smaller, maxing out at just $519.
What other limits apply?
In addition to the regular income limits above, there's also a limitation on the amount of investment income that a taxpayer can earn and still qualify for the credit. Those who have more than $3,500 in investment income aren't eligible to take the credit. That's consistent with the purpose of the credit, as those with outside financial resources from investments arguably don't need the tax break as much as those who don't have such resources.
Why the earned income tax credit is worth pursuing
Finally, one of the biggest benefits of the earned income tax credit is that it can give taxpayers money back even if they wouldn't otherwise owe any tax. The credit is an example of what's known as a refundable tax credit, allowing you to get a check back from the IRS if your taxes due are less than the amount of the credit.
However, the provisions of the earned income tax credit are complicated enough that many families who would qualify for it never claim it. According to the IRS, as many as one in five eligible taxpayers don't claim the earned income tax credit. The IRS sponsors an EITC Awareness Day most years in January to call attention to the tax break, but even so, a number of people who would benefit the most from the provision never reap its rewards.
Claim your credit
The IRS EITC website has plenty of useful information and tips on how to make the most of the credit. In addition, keep in mind that if you want, the IRS will calculate your credit for you. Just indicate that you want the IRS to do so on your tax return, and it will figure out the amount of the credit and calculate your refund accordingly.
If you qualify, make sure you get your earned income tax credit. Otherwise, you're just letting a valuable tax break go to waste.
