Last week was an Internal Revenue Service holiday of sorts. It was Earned Income Tax Credit Awareness Day. You may have heard of this credit, but have no idea what it is, how it works, or whether you might be eligible for it. Below, I will do my best to lead you out of the darkness and shed some light on the EITC.
The EITC is what is called a "refundable" credit. This means that even if you owe $0 in tax, if you qualify for the EITC, you can still receive a refund. The credit is reported on lines 66a & 66b of your 1040, and there is a Schedule EIC that must be attached to the return. The instructions, worksheets, and calculation tables take up 17 pages of the Form 1040 instruction manual for 2016, so I would not recommend going it alone with a pencil and paper.
How much is the credit worth? The maximum credit amount depends on the number of qualifying children the taxpayer has. The maximum amounts for 2016 are:
- $6,269 with three or more qualifying children;
- $5,572 with two qualifying children,
- $3,373 with one qualifying child;
- $506 with no qualifying children.
Additionally, there are income limits in order to qualify:
- Your tax year investment income must be $3,400 or less for the year.
- Must not file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.
- Your total earned income must be at least $1.
- Both your earned income and adjusted gross income (AGI) must be no more than:
(author's note: this is where my lack of HTML coding skills becomes glaringly obvious. I wanted to insert a table here, but failed miserably.)
- If you are filing as single, head of household, or widowed:
- $14,880 with zero qualifying children claimed;
- $39,296 with one qualifying child claimed;
- $44,648 with two qualifying children claimed;
- $47,955 with three or more qualifying children claimed.
- If you are married filing jointly:
- $20,430 with zero qualifying children claimed;
- $44,846 with one qualifying child claimed;
- $50,198 with two qualifying children claimed;
- $53,505 with three or more qualifying children claimed.
Note: there are special exceptions that apply to members of the military, ministers and clergy, those impacted by disasters, and people with disabilities or with children with disabilities.
The IRS website has an EITC Assistant that can help you determine if you qualify.