When paying taxes, you should use available opportunities to reduce your overall tax liability. Opting for deductions will help you reduce your taxable income, which means you must claim them before applying the current tax rates.
On the other hand, claiming credits will cut down on the total amount of taxes you owe to the IRS, which means the process is done after calculating the initial taxes owed. In addition, you can claim some credits to get a refund even if you did not owe any taxes or pay in excess.
The Earned Income Tax Credit (EITC) is one such opportunity that may be available to you. However, your ability to claim it depends on the amount of money earned in addition to other general eligibility criteria.
What Is The Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a tax credit available to low- to moderate-income families and workers. If you qualify for it, you can increase your tax refund or reduce the total taxes you owe for the tax year you are filing.
Because EITC affects refunds, if you claim it, your tax refunds are likely to be delayed. The IRS tends to issue tax refunds for EITC claimants starting from mid-February.
Usually, the IRS sends taxpayers who don’t claim EITC a letter informing them that they may qualify for it. So, if you receive the letter, you need to pay close attention to it.
1. Basic Eligibility Criteria for EITC
There is no point in wondering about the max income to get earned income credits if you don’t meet the basic eligibility criteria. The following criteria apply if you don’t have qualifying children.
You can claim EITC if:
- You earn an income below the set threshold
- You reside in the U.S. for at least half of the tax year
- You are a member of the military or clergy
- You receive disability income
- You stay within the age limits by the end of the tax year
EITC is commonly available to those with qualifying children. In such cases, your child:
- Must have a valid Social Security Number
- Should not be claimed by someone else as a qualifying child unless it is your spouse who files joint returns with you
- Should be younger than you and under 19 years by the end of the tax year, or under 24 years and a full-time student for at least five months of the year. An adult child also qualifies at any age if they are totally disabled at any time during the tax year
- Should be related to you legally, by blood or by marriage. Permitted children include grandchildren, nephews and nieces, siblings and half-siblings, adopted and fostered children and stepchildren
- Must live with you at home for at least half the tax year unless they are exempt, such as when they have been kidnapped
Read More: Child Tax Credit: What Is It & How to Qualify
2. How Much Money Can You Make In A Year?
How much money can you make in a year and still get EITC? Well, it depends on whether you have qualifying children or not. Remember, the income limits are based on the adjusted gross income (AGI) and not the gross income.
Generally, you can make up to $57,414 in earned income and get investment income of up to $10,000 and still qualify for EITC for the tax year 2021. However, the number of qualifying children you have will influence your EITC income limits and maximum credit amounts. And so will your filing status.
For example, if you have no children and are filing as a single taxpayer, your adjusted gross income (AGI) must not exceed $21,430. But if you have three children, you can make up to $51,464 and still claim EITC as a single taxpayer.
On the other hand, if you have no children and file a joint return, you can claim EITC if your AGI does not exceed $27,380. And if you have three kids and file joint tax returns, you can make the maximum AGI of $57,414.
3. How Much Is The Maximum Earned Income Credit?
The EITC you receive varies depending on the number of qualifying children. If you have zero children, you can claim up to $1,502. One child gives you access to $3,618 worth of credits, while two kids will enable you to claim a maximum of $5,980. Lastly, three children will enable you to get credits of up to $6,728.
However, any qualifying children beyond three will not make a difference to the EITC you can earn.
- IRS.Gov: Credits and Deductions for Individuals
- IRS.Gov: Earned Income Tax Credit (EITC)
- IRS.Gov: I Received a Letter from IRS about My Credit; What Should I Do?
- IRS.Gov: Qualifying Child Rules
- IRS.Gov: Who Qualifies for the Earned Income Tax Credit (EITC)
- IRS.Gov: Earned Income and Earned Income Tax Credit (EITC) Tables
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