Earned Income Credit (EIC)

What Is the Earned Income Credit (EIC)?

Also known as the earned income tax credit (EITC), the earned income credit (EIC) is a tax break available to US workers and self-employed individuals whose incomes are low or moderate. In addition to the federal credit, several US states and local governments, including the District of Columbia, Guam, and Puerto Rico, offer similar EITC programs.

EITC Benefits for Individuals and Families

According to the Center on Budget and Policy Priorities, the EITC helps reduce poverty. Millions of working households, especially those with children, rely on this and similar tax credits to supplement lower earnings each year. In turn, it’s also a financial uplift for the economy.

When employees claim EIC on their individual returns, it reduces the amount of taxes they owe and may result in a larger refund. As of December 2022, 31 million workers and families benefited from this program and about $2,043 was the average amount received nationwide.

HR managers in community organizations, schools, and businesses can use EITC Awareness Day to help ensure people know about this valuable program and how to determine if they’re eligible. The IRS has an online toolkit with resources that make it easy for organizations to spread the word about this program and encourage people to take advantage of it.

Who Qualifies for Earned Income Credit?

Federal EIC is available for workers with and without dependents, but they must meet certain criteria to qualify. IRS Publication 596, Earned Income Credit (EIC) states that all workers must meet the following seven benchmarks to claim this tax credit:

1. Your income is less than the adjusted gross income (AGI) limit.
2. You have a valid Social Security number (SSN).
3. You meet special rules for separated spouses.
4. You were a US citizen or resident alien all year long.
5. You cannot file Form 2555, Foreign Earned Income.
6. Your investment income is less than the limit.
7. You earned money that year (e.g., wages, tips, net self-employment earnings).

Next, eligible workers must also fulfill other criteria to apply for this tax credit. Rules for workers with one or more qualifying children include:

• The child meets the relationship, age, residency, and joint return tests.
• The child isn’t being documented by another taxpayer claiming EIC.
• The worker isn’t a qualifying child of another taxpayer.

Rules for workers without qualifying children include:

• You meet the age requirements.
• You’re not a dependent of another taxpayer.
• You’re not a qualifying child of another taxpayer.
• You’ve lived in the US for more than half the year.

Special rules apply to the US military, clergy, as well as people and their relatives with disabilities. The IRS offers a handy EITC calculator online that people can use to determine their eligibility status.

How to Claim EIC on Your Tax Return

After determining they qualify, employees must complete specific IRS forms to claim this tax credit on their return. Depending on their situation, they’ll need to submit the following document(s):

• Form 1040, US Individual Income Tax Return
• Form 1040-SR, US Tax Return for Seniors
• Schedule EIC (for people with children)

How Much Is the Earned Income Credit for 2023?

For 2023, the IRS maximums issued are between $600 and $7,430 per eligible person in earned income credit. The amount a taxpayer receives depends on their filing status, income, and number of dependants (if applicable). Also, they must have $11,000 or less in investment income to qualify.

The chart below shows how the 2023 EIC correlates to different individuals and families:

Can I Claim EITC for Past Years?

If you haven’t claimed EIC in previous years and think you may have been eligible, there might still be time for you to claim this tax credit. You have three years from the due date of your tax return to file and claim earned income credit. For example, you’ll have until 4/18/2025 to claim EIC for the 2021 tax year.

For more information, see Publication 596, Earned Income Credit (EIC).