The earned income tax credit, or EITC, is
available to taxpayers with low to moderate income. It was created in 1975 to help offset the heavy
burden of Social Security taxes and act as an incentive for low-income taxpayers to continue
working.
About the EITC
The EITC is a refundable tax credit, which means that it can be used to reduce your taxable income
below zero and generate a tax refund. The maximum amount of EITC allowed and income limitations
associated with claiming it are adjusted each year by the IRS based on the cost of living. You must
meet certain requirements in order to claim the credit. If you have a qualifying child or children,
you claim the EITC by filing Schedule EIC with your tax return.
Determining eligibility
You must meet the following requirements in order to be eligible for the EITC:
- Have a valid Social Security number.
- Be a U.S. citizen or a full-year resident alien.
-
Have earned income (wages, salaries, self-employment income, etc.) and meet the EITC income
limits.
You cannot claim the credit if you are married and filing a separate return, file Form 2555 or
2555-EZ, have more than $3,500 of investment income (2019 amount), or if you can be the qualifying
child of another person. You can claim the EITC without having a qualifying child and filing
Schedule EIC if you are not claimed as a dependent on another person's return, you live in the U.S.
for more than half the year and are between ages 25 and 65.
Qualifying children
You use Schedule EIC to claim the EITC with one or more qualifying children (maximum of three). To
qualify, a child must meet the tests for residency, age, joint returns and relationship. These
include:
- Have lived with you for more than half the year
-
Be under age 19 at the end of the tax year—or 24 if a full-time student—and not have filed a
joint return
-
Be your son, daughter, brother, sister, stepbrother, stepsister or a foster child legally placed
under your custody.
Only one person can claim a qualifying child. If a child can be the qualifying child for more than
one person, the IRS has a tie breaker to determine who claims the child.
Calculating the credit
There are two ways to calculate the amount of your EITC. First, you can calculate the credit
yourself using the earned income credit worksheet and earned income credit table found in the 1040
Instruction Booklet. When filing Schedule EIC and claiming the credit with a qualifying child or
children, it is very important that you find your credit amount in the appropriate column for your
filing status and number of qualifying children on the earned income credit table. Second, you can
choose to have the IRS figure your credit amount for you if you do not wish to calculate the credit
yourself. You can do this by entering "EIC" on line 64a of Form 1040.
The amount of EITC you qualify for increases with the number of qualifying children (up to three),
is available with earned income of up to $54,884, and can result in a credit of up to $6,431 for
three children (lesser amounts for one or two children; all amounts are for 2019).
