The Earned Income Credit is a refundable tax credit available to low- and middle-income taxpayers. Refundable credits are the most advantageous because you'll receive the difference as a tax refund after they erase any tax bill you might owe the Internal Revenue Service for the year.
The IRS has specific rules for allowing taxpayers to claim this credit. You’ll be eligible if you meet them. You can only claim the EIC only if your income falls below a certain amount. The maximum allowable income amounts depend on your filing status and the total number of qualifying dependent children you have.
Filing Status Eligibility
The IRS states that you must file a joint tax return with your spouse to qualify for the EIC if you're married. Single taxpayers who meet all the IRS requirements qualify, too. You're also eligible to claim this credit if your filing status is widowed or head of household. Only those who file separate married returns are disqualified.
2021 Maximum Household Income
As the name suggests, you must have earned income to qualify for the EIC, but you can't have too much of it. The IRS sets EIC income maximums based on the total of your qualifying dependents and your filing status.
The allowable maximum income for taxpayers who file as head of household, single or widowed with no children is $20,430 for the 2021 tax year, the return you'll file in 2022. Your maximum income limit increases to $42,158, with if you have one dependent, and to $47,915 with two dependents. The income maximum is $51,464 if you have three or more dependent children.
The maximum income for married taxpayers who file jointly with no qualifying children is $27,380. One qualifying child increases your income maximum to $48,108. The maximum increases to $53,865 with two children, and to $57,414 if you have three or more qualifying children.
There's an investment income limit as well. Any income you have that is produced by investments, such as interest or dividends, must be $10,000 or less.
What Counts as Earned Income?
Interest and dividends are not included with your other income for purposes of meeting the limit, nor is income you might receive from Social Security, alimony, child support, unemployment compensation, pensions or annuities. These sources of income are not considered to be "earned," so they won't qualify you for the EIC if they're your only sources of income – you don't also derive income from a job.
2021 Maximum EIC
The IRS also sets limits as to how much of a credit you can receive. They're based on how much earned income you have and how many qualifying child dependents you have as well.
The maximum credit for all eligible taxpayers with no children is $1,502 for the 2021 tax year. You'll qualify for a maximum credit of $3,618 with one child. Two children qualify you for a maximum credit of $5,980, and three children increase your maximum credit to $6,728. Your credit might be less than these amounts, however, depending on how much income you earn.
EIC IRS Refund Schedule
The IRS requires more time to process your refund if you claim the EIC on your tax return. Federal law requires that it must hold your entire refund until at least Feb. 15. You might receive an electronically deposited refund to your debit card or checking account in early March.
Unfortunately, your entire refund must be held until this date, both the portion of it that represents the tax credit and any overpayment of taxes from paycheck withholding over the course of the tax year.
EIC Eligibility Requirements
The EIC’s main eligibility requirement is that you earn income from working for an employer, owning a business or farming. Filing for a foreign income tax credit makes you ineligible.
Your qualifying children must have Social Security numbers when you file your tax return. You'll be asked to enter the numbers on your return. They must also be younger than age 19 and live with you more than half the year. The IRS allows you to claim your child at any age if they're permanently and totally disabled, and you have until they reach age 24 if they're full-time students for at least five months of the tax year.
Your children must also be younger than you, and younger than you and your spouse if you file a joint married return, if they're not disabled.
Filers with no children can't be another taxpayer’s dependent. They must be at least 25 years old but younger than age 65. You must also live in the U.S. for at least six months during the tax year to meet the residence requirement. See more EIC conditions in the IRS Publication 5334, Do I Qualify for EIC flowchart.
Carol Luther has published feature articles in print magazines, ghostwritten blogs, and produced digital content since 2007. She has published personal finance and small business articles for the Houston Chronicle, Mahalo, the Nest, USA Today, Wahm, and Zacks. Carol has designed, implemented and managed multi-year, multimillion-dollar domestic and international projects services for higher education, nonprofits, and small to medium businesses for more than 20 years.