The Earned Income Tax Credit (EITC), also referred to as the “earned income credit,” is a tax benefit intended for low- to moderate-income workers. To qualify, taxpayers must have earned income from work and meet specific income requirements based on their filing status and number of qualifying children. The EITC is designed to provide financial support by lowering the amount of taxes owed and, in some cases, offering a refund.
How the EITC Works
As a refundable tax credit, the EITC can be applied to reduce the amount of taxes a taxpayer owes. If the credit exceeds the tax amount owed, the difference can be refunded to the taxpayer, potentially boosting income for those who qualify. Eligibility is based on earned income, filing status, and whether the taxpayer has qualifying children.
Income and Credit Amounts for 2024 and 2025
The amount of the EITC varies annually, reflecting changes in income limits and credit amounts. For the 2024 tax year (filing in 2025), the maximum credits for the EITC are:
- No children: $632
- One child: $4,213
- Two children: $6,960
- Three or more children: $7,830
For the 2025 tax year (filing in 2026), these amounts increase slightly:
- No children: $649
- One child: $4,328
- Two children: $7,152
- Three or more children: $8,046
Income thresholds also apply. For example, in 2024, single or head-of-household filers without children must have an income below $18,591, while married joint filers with three or more children must earn below $66,819. Both the adjusted gross income (AGI) and earned income must be below these limits to qualify.
Eligibility Requirements for EITC
To qualify for the EITC, the taxpayer must have earned income, such as wages, salary, tips, or income from self-employment. The taxpayer cannot have investment income that exceeds a certain limit, which is $11,600 for 2024 and $11,950 for 2025. Additionally, those claiming the EITC without any qualifying children must be between 25 and 64 years old if filing individually. If married and filing jointly without children, only one spouse must meet the age requirement.
Who Qualifies as a Child for EITC?
For taxpayers claiming one or more children as part of the EITC, the child must meet specific qualifications. A qualifying child can be a biological child, adopted child, stepchild, foster child, or grandchild. Other family relations, such as siblings or their descendants, may also qualify. The child must be under 19 at the end of the tax year and younger than the taxpayer or spouse if filing jointly. If the child is a full-time student, the age limit increases to 24, and there is no age limit for children who are permanently and totally disabled. Additionally, the child must live with the taxpayer in the United States for more than half of the year.
Special Situations for EITC
The EITC has specific rules for members of the military, clergy, and individuals who receive disability income or have children with disabilities. For instance, military personnel can choose to include or exclude certain combat pay when calculating the credit. Separated couples who are still legally married but meet certain conditions, such as living apart and having a child who lives with one parent for more than half the year, may also be eligible.
Claiming the EITC on Your Tax Return
Taxpayers can claim the EITC on their tax returns by filling out Form 1040 or Form 1040-SR and, if they have qualifying children, completing Schedule EIC. Tax preparation software often simplifies this process, guiding users through the requirements. Free tax-prep programs, such as the IRS Free File, may be available to eligible taxpayers with simpler tax situations.
Consequences of EITC Errors
Errors in claiming the EITC can lead to delays in receiving the refund and, in certain cases, may result in penalties or temporary bans from claiming the credit. If the IRS finds an error in the EITC claim, the taxpayer may be required to repay any amount paid in error, plus interest. Additional consequences can include filing Form 8862, “Information to Claim Certain Credits After Disallowance,” before being allowed to claim the EITC again. Taxpayers who file recklessly or fraudulently could face a two-year ban, or a ten-year ban if the IRS finds fraudulent filing.
Claiming Past Years’ EITC
Taxpayers who missed claiming the EITC in previous years but were eligible can file an amended tax return for up to three years prior to reclaim the credit. This process allows those who qualified but did not claim the credit to potentially receive a refund, offering a retroactive financial benefit if eligibility criteria were met.
Understanding the EITC and eligibility requirements can help taxpayers determine if they qualify and guide them through the process of claiming this potentially valuable tax credit.
