Here’s what you need to know about the EITC and whether you’re able to take advantage of it to reduce your tax liability.
What Is Earned Income Tax Credit?
Earned income is money that you were paid for working for someone else or money that you made from running your own business or farm. In general, earned income can include:
- Self-employment income
- Union benefits
- Long-term disability benefits received before reaching the minimum retirement age (but doesn’t include income like capital gains, dividends, alimony, Social Security or unemployment benefits)
Each qualifying child you claim increases the earned income and adjusted gross income (AGI) limits.
Earned Income Tax Credit Income Limits
The earned income tax credit is only available if your income doesn’t exceed certain limits, some of which are based on your filing status and the number of qualifying children you claim. This table breaks down the earned income and AGI limits:
|2017 Tax Year Earned Income Tax Credit Income Limits|
|If your filing status is:||Number of Qualifying Children|
|Head of Household||$15,010||$39,617||$45,007||$48,340|
|Married Filing Jointly||$20,600||$45,207||$50,597||$53,930|
|Information accurate as of Jan. 30, 2018.|
The earned income credit gives low-income taxpayers an extra credit on their tax return as a reward for earning income and helping support their family. The credit can increase for taxpayers with qualifying children. In fact, for some taxpayers, this tax break could be worth over $6,000 for the 2017 tax filing year.
Do I Qualify for the Earned Income Tax Credit?
A tax credit is one of the quickest ways to reduce tax liability — it’s a direct reduction of the amount of tax owed. To qualify for the IRS earned income credit, you must have earned income during the year. Here’s what else you need to do in order to qualify:
- Your investment income for the year cannot exceed $3,450.
- You cannot file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.
- Neither your earned income nor your AGI can be higher than the limit for your filing status.
In addition, you, your spouse — if married — and any qualifying child you claim must have a valid Social Security number that was issued before the due date for filing your tax return, including any tax extensions for which you qualify.
Filing Status and Rules for Qualifying Children
Your filing status must be one of the following: single, head of household, surviving spouse or married filing jointly. You can’t claim EITC if your tax filing status is married filing separately.
Qualifying children aren’t limited to your biological children, and just because someone is your biological child doesn’t automatically mean he or she is your qualifying child. The qualifying child must meet the relationship test, age test, residency test and joint return test.
- Relationship test: The child must be your biological or adopted child, stepchild, foster child, a descendant of any of your children, a sibling, half sibling, stepsibling or a descendant of any of your siblings.
- Age test: The child must be younger than you or your spouse and either under 19 or, if a full-time student, under age 24. The person also meets the age test if he or she is permanently and totally disabled, regardless of age.
- Residency test: The child must live with you in the U.S. for more than half of the year.
- Joint return test: The person cannot file a joint tax return with a spouse unless the child’s spouse wasn’t required to file and only filed to obtain a tax refund.
Claiming the Credit With No Qualifying Children
You’re not required to have qualifying children to benefit from the EITC. Although the credit will be limited, you can still claim it as long as you meet the basic criteria as well as these additional criteria:
- You lived in the U.S. for more than half the year.
- No one else can claim you as a dependent or qualifying child on their income tax return.
- You are younger than 65 and at least 25 at the end of the year.
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