What Is the Earned Income Tax Credit (or EITC)?
The Earned Income Tax Credit (EIC or EITC) is a refundable credit for workers who earn low or moderate incomes. This credit is meant to supplement the income you have earned through working, whether for yourself (self-employed) or for someone else. If you qualify for the Earned Income Tax Credit you can reduce your taxes and increase your tax refund. In general, the EITC allows more working people and their families to keep more of their hard-earned money.
The income limits for the Earned Income Credit have been adjusted for 2014, so even if you didn’t qualify for the EITC in the past, you may be able to claim it this year. The maximum amount of the credit has also increased.
Do I Qualify for the Earned Income Tax Credit?
Use the free Earned Income Credit Educator below to see if you qualify for the EITC:
Can I Claim the Earned Income Tax Credit or
Open the Earned Income Tax Credit Tax Tool in New Window
Are You Missing Out on the Earned Income Credit?
The IRS estimates that 1 out of 5 people who qualify for the EITC don't claim it on their tax returns.
Those people most in danger of missing out on their Earned Income Tax Credit include:
- the self-employed
- people living in rural areas
- grandparents raising their grandchildren
- the recently divorced
- the recently unemployed
- taxpayers with no children
- recipients of disability benefits
Don't let this happen to you! When you prepare your tax return on efile.com, our software will automatically check to see if you qualify for the EITC, calculate the amount of your credit, and fill out the right forms for you to claim it.
Remember: even if you don't owe income tax, you could still get the EITC as a refund check, but you have to file a return to claim it.
What Are the Qualifications for the Earned Income Credit?
For Tax Year 2014, the EITC begins to phase out (decrease in value) at an adjusted gross income (AGI) of $8,110 for individuals with no Qualifying Child, and at an AGI of $13,540 for married couples filing jointly who have no Qualifying Children.
For taxpayers with Qualifying Children, the EITC begins to phase out at an AGI of $17,830 for individuals, and at $23,260 for married couples filing jointly (for one Qualifying Child)
The EITC phases out entirely (is not available) for taxpayers with an adjusted gross income of:
- $14,590 with no Qualifying Children ($20,020 if married filing jointly)
- $38,511 with one Qualifying Child ($43,941 if married filing jointly)
- $43,756 with two Qualifying Children ($49,186 if married filing jointly)
- $46,997 with three or more Qualifying Children ($52,427 if married filing jointly)
What is a Qualifying Child?
To qualify for the Earned Income Credit, you also must meet a number of other requirements:
- You, your spouse if married filing jointly, and any Qualifying Children you claim must each have a valid Social Security Number.
- You must have earned income (from employment or self-employment).
- Your filing status cannot be married filing separately.
- You must be a U.S. citizen or resident alien for the whole year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
- You cannot be the Qualifying Child (for the Earned Income Credit) of another person.
- Your Qualifying Child for the EITC cannot be used by more than one person to claim the EITC.
- If you do not have a Qualifying Child, you must:
- be older than 25 but younger than 65 at the end of the year
- live in the United States for more than half the year
- not be the Qualifying Child of another person.
- You cannot file Form 2555 or 2555-EZ (Foreign Earned Income).
- Your investment income for the year must be $3,330 or less for Tax Year 2014.
Special Note for Single Workers with No Children: Single filers with no dependents are believed by the IRS to be the largest group of Qualifying taxpayers who do not claim the EITC on their tax returns. Do not fall into this trap! Even if you are not married and/or have no children, you may still be able to claim the credit. You qualify for the EITC as long as you were between the ages of 25 and 65 on Dec. 31 of the tax year, you earned income through work, and you met the income limits specified above.
What Is Earned Income?
"Earned" income is any money you were paid for doing work, whether you work for yourself or for someone else.
The following are examples of earned income:
- Self-employment net earnings
- Statutory employee gross pay
- Jury duty pay
- Union strike benefits
- Long-term disability benefits received before minimum retirement age
- Nontaxable combat pay, if you choose to include it (see special EITC rules)
Next are some examples of unearned income. Earned income does NOT include:
How Much Earned Income Tax Credit Do I Get?
The amount of Earned Income Credit you get depends on several factors. In general, your credit is more valuable if you have one or more Qualifying Children.
For 2014, the maximum Earned Income Tax Credit per taxpayer is:
- $496 with no Qualifying Children
- $3,305 with one Qualifying Child
- $5,460 with two Qualifying Children
- $6,143 with three or more Qualifying Children
The EITC can be confusing. If you need more help determining if you are eligible for the Earned Income Tax Credit and figuring the exact amount of your credit, you should just begin preparing a tax return using the efile.com online software and the program will calculate your EITC credit amount for you.
Earned Income Tax Credit (EITC) - Special Rules
Special EITC Rules for Members of the Military
Members of the Armed Forces do not normally include nontaxable pay, such as combat pay, in their earned income when calculating the Earned Income Credit. However, they may choose to include nontaxable pay in their earned income for the purposes of calculating the EITC. This may have the effect of increasing their credit amount.
Special EITC Rules for Members of the Clergy
The housing allowance provided for a member of the clergy as a part of their pay is not normally included in taxable income, but it is reported as a part of their net earnings from self-employment. Therefore, the housing allowance (or rental value of the home) may be included in earned income for the purposes of calculating the Earned Income Tax Credit.
Special EITC Rules for Those Receiving Disability Benefits
Disability retirement benefit payments are included in earned income if you are younger than your minimum retirement age (the earliest age you could have received a pension had you not been disabled). After your minimum retirement age, any disability benefit payments will be considered taxable pension payments and may not be counted as earned income. Social Security Disability Insurance and private disability insurance payments for which you paid the premiums are not considered earned income for the purposes of calculating the EITC.
Special EITC Rules for Adopted Children
If your adopted child has not yet been issued a Social Security Number, he/she may be assigned an Adoption Taxpayer Identification Number for tax purposes. Unfortunately, this number may not be used to claim a Qualifying Child for the Earned Income Credit. To claim the EITC, you may file an amended tax return once your child has been assigned their SSN.
Learn more about tax amendments.
If you have adopted a child, find out about the Adoption Tax Credit.
Are there State and Local Earned Income Tax Credits?
Yes! 22 states, the District of Columbia, New York City, and Montgomery County, MD, all have their own Earned Income Tax Credits. If you are filing a tax return for one of these states, the eFile tax software will help determine if you qualify for a state or local EITC as well as the Federal EITC.
List of States with Local Earned Income Tax Credits
- District of Columbia
- Montgomery County, Maryland
- New Jersey
- New Mexico
- New York
- New York City, NY
- Rhode Island
How Do I Claim the Earned Income Tax Credit on My Tax Return?
When you prepare your tax return on efile.com, the online software will automatically check to see if you qualify for the Earned Income Tax Credit. If you qualify for the EITC, the efile.com software will automatically calculate the exact amount of your credit for you. The software will generate the form(s) you need to claim your full credit and fill them out for you as well.
See what other tax credits and tax deductions for which you may qualify.