Earned income tax credit (EITC): What it is and who qualifies 

Prices are soaring at the fastest rate many Americans have ever seen, making one of the most popular tax credits for lower-income workers all the more relevant: the earned income tax credit.

But while millions of taxpayers are eligible for the earned income credit, this particular tax break is among the trickiest. IRS Commissioner Chuck Rettig told lawmakers in a March testimony that the credit has an error rate of 25 percent.

Here’s how the earned income credit works, including what it is, who qualifies and how you can claim the money to ensure you don’t leave any money on the table when you file.

What is the earned income tax credit (EITC)?

The earned income tax credit is one of the largest refundable tax credits for the country’s lowest paid workers. Workers don’t have to owe taxes to receive the credit, and many taxpayers receive more money through the credit than they pay in federal income tax, according to the Internal Revenue Service (IRS). All of that means, the credit can either reduce the total taxes individuals owe — or give them money back in the form of a refund.

Originally established in 1975 during the Ford administration, the credit was seen as a key work incentive for some of the country’s lowest earners, letting them recover some of the money that they paid throughout the year in Social Security payroll taxes — and offsetting the disproportionate burden they endured from the era’s record inflation.

The size of the total credit each worker is eligible for depends on his or her annual income, number of children and filing status. For taxes filed in 2022, the maximum credit workers can claim ranges from $1,502 to $6,728.

But even if you don’t have a child, you can still qualify for the credit. Meanwhile, so-called “childless” workers can receive a credit nearly three times larger than what it used to be (from $538 in 2020 to $1,502 in 2021), thanks to new pandemic-era expansions from President Joe Biden’s American Rescue Plan. Unless extended in a new legislative package, however, workers who don’t have children will see a maximum credit worth $560 for taxpayers’ 2022 filings (or the 2023 tax season).

Who qualifies for the earned income tax credit

The earned income tax credit is aptly named: The most important eligibility requirement is having some form of earned income. Most of the time, that means taxpayers have to have been working. The exact amount depends on how many children you have and your filing status. In 2021, for example, single, heads of household and married filers with one child must have earned at least $10,400 to be eligible for the full credit, according to the IRS.

Those earnings can be from wages, salaries, tips or other forms of pay where federal income taxes are withheld, according to the IRS. It can also be money made from gig work, self-employment, pre-retirement disability payments or nontaxable combat pay.

Earned income, however, does not include interest or dividend payments, nor money that you received from pension, annuity, unemployment insurance (UI), alimony or child support, the agency said.

To be eligible, taxpayers also must:

• Have a valid Social Security number by the due date of their 2021 return;
• Have $10,000 or less in investment income during the 2021 tax year (up from $3,650 in 2020);
• Not file a Form 2555 reporting foreign earned income; and
• Be considered a U.S. citizen or resident alien for the entire year.

If you’re going to claim a child for the credit, the child must be age 18 or younger (or 24, if the child is a full-time student).

If you don’t have children, the eligibility requirements look slightly different from the rest of taxpayers, with the IRS requiring that those individuals:

• Live in the U.S. for more than half of the tax year;
• Not be claimed as a qualifying child on another’s tax return; and
• Be at least age 18 by the end of the year if you were formerly homeless or in foster care; at least 24 years old if you were a full-time student during the tax year; or at least 19 in all other instances.

Whether taxpayers qualify for the credit also depends on their adjusted gross income (AGI) in multiple tax years — both the current, previous and upcoming one. Thanks to an amendment in the American Rescue Plan, taxpayers can use their 2019 earned income if it’s higher than their 2021 earnings. That could result in a larger credit, the IRS says.

Cut offs happen rather quickly, underscoring the nature of the credit being available for the country’s lowest earners. For households with three or more children to earn the full credit, single and heads of household filers can’t make more than $19,300, while married couples have a threshold of $25,220. But as long as those single or heads of household filers earn at most $50,954, they can earn at least a partial credit, as can married filers making $56,844.

For 2021, workers with no children can claim a maximum $1,502 credit, up from $538 in 2020. Credits increase for workers who have one or more qualifying children.

How to claim the earned income tax credit

To claim the EITC, U.S. workers have to file a tax return — even if it isn’t normally required. That so-called “standard deduction” income limit for 2021 is $12,550 for single filers and married filing separately, $18,800 for heads of households and $25,100 for married couples filing jointly.

U.S. taxpayers claiming the credit also have some discretion over the filing status that they choose. Married but separated filers can claim the credit without filing a joint return with their spouse if they have a qualifying child and do not live with their spouse for at least half of the year. They also have to be considered legally separated in the state where they live.

New for 2021, U.S. workers who have children without social security numbers can now qualify for the “childless worker” credit. Previously, those taxpayers didn’t qualify for the credit.

If you’re unsure of whether you qualify, utilize the IRS’ qualification assistant tool.

Taxpayers who receive the credit won’t be able to get their refund until at least mid-February of any given tax year, according to the IRS. By law, the agency cannot disburse those funds any sooner — as well as other family tax credits, such as the child tax credit — to prevent fraud and errors.

After that, if you file your taxes electronically and provide the IRS your direct deposit information, you can expect your refund within 21 days.

Taxpayers also have an opportunity to claim an earned income credit at the state level, with 28 states and the District of Columbia offering their own state EITC, according to the Urban Institute. By 2023, Missouri, Utah and Washington will also join the list.

Most state credits are based on the percentage that you receive in federal earned income credit money, but check with your state’s individual requirements.

Still, changes could be coming to the system. Even IRS chief Rettig thinks they’re necessary. In his March congressional testimony, Rettig told legislators about the need to eventually simplify the family tax credit system.

“We urge people potentially eligible for this valuable credit to review the guidelines,” Rettig said back in January. “Many people each year overlook this and leave money on the table.”

Learn more:

• Filing your taxes soon? Here’s how COVID-19 relief could affect what you owe
• Where’s my refund? How to track your tax refund
• The best tax software