Earned Income Tax Credit Overview

November 28th, 2018

Earned Income Tax Credit is a refundable tax credit for low and moderate income individuals and families. If the credit reduces your tax liability to zero or if your income is low enough that you are tax exempt, the Earned Income Tax Credit can still result in a refund. This makes the Earned Income Tax Credit (EITC or EIC) one of the best tax credits for low income families. Keep reading to learn the refund amount available for you, how you qualify, documents you need to apply, and when to expect your refund.

Amount of Earned Income Tax Credit Available for You

The maximum amount of Earned Income Tax Credit available for tax year 2018 is $6,444, if you are married filing jointly and have three or more qualifying children. It is drastically reduced, if you do not have any qualifying children and are single to a maximum amount of $520. Depending on your individual circumstances, specifically the number of qualifying children, filing status, and earned income, the amount you receive can range between those amounts.

How You Qualify

To qualify for the Earned Income Tax Credit, you must meet certain basic rules, have earned income, and either qualify with or without a qualifying child.

The basic rules are:

  1. You, your spouse, and any qualifying children must have a social security number. Special rules apply if you are a nonresident alien;
  2. You must file as single, married filing jointly, head of household, or qualifying widow(er). You cannot qualify for the EITC, if you file married filing separately;
  3. You must have earned income;
  4. Your investment income must be $3,450 or less; and
  5. You cannot file Form 2555 or Form 2555-EZ, Foreign Earned Income Exclusion.

Earned income can be income you gained from a job, such as wages, or a business. You must have earned at least $1. Investment income cannot be more than $3,450 for the tax year. Also, the EITC is completely phased out for single filers, who earn more than $15,309 and married filing jointly filers, who earn more than $20,999. If you have even one qualifying child, those limits are increased to filers who earn more than $40,401, if single and $46,101, if married filing jointly. It is completely phased out for married filing jointly filers, who earn more than $54,997.

To receive any EITC without a qualifying child, you must have earned income of $15,309 or less to qualify for any credit. To qualify for the maximum $520 for single filers, you must have earned income less than $8,510. The credit is reduced as your income increases between those amounts. Once your income reaches above $15,309, the EITC is completely phased or reduced to zero. In addition to meeting the other requirements, you also must:

  1. have lived in the US for more than half of the year;
  2. not be claimed as a dependent or qualifying child on someone else’s return; and
  3. be at least 25 years old, but no older than 64 years old.

To receive any EITC with a qualifying child, you must have earned income of $54,997 or less to qualify for any credit. To qualify for the maximum $6,444, you must have earned income less than $24,399, file as married filing jointly, and have three or more qualifying children.

Everyone else, who meets all the other qualifications, will qualify for a EITC between the range of $520 - $6,444 based on the number of qualifying children and amount of their earned income. You can check to see if you qualify and the amount you qualify for by entering the necessary information in the EITC Assistant on the IRS website. It takes approximately 30 minutes. Currently, the IRS does not have the 2018 version available, but the 2017 version will give you a good estimate until the 2018 version is made available.

Documents You Need to Apply for the Earned Income Tax Credit

The documents you need to apply are listed below. Make sure you bring these to your tax preparer, as they will need this information to determine if you qualify for the Earned Income Tax Credit.

  • Complete names and Social Security Cards for everyone, including qualifying children, listed on your tax return;
  • Birthdates for everyone, including qualifying children, listed on your tax return;
  • Copy of last year’s federal and state tax returns, if you have them;
  • W-2, 1099s, and all income statements;
  • All records of expenses for deductible items, such as: tuition, mortgage interest, property taxes, and business expenses, if you own a business or farm;
  • Bank and routing numbers for your bank account, if you want your refund deposited directly in your account (Please note: this is the quickest way to receive your refund.); and
  • Dependent child care information, including their name, address, and social security number or other tax identification number, if you want to receive any credit for these child care expenses.

When to Expect Your Refund

By law, the Internal Revenue Service (IRS) cannot issue your Earned Income Tax Credit until mid-February at the earliest. This means depending on how many people apply and when you apply, you will be waiting until the end of February or later. Before 2017, the IRS would process the refunds quicker, so families who needed them most would receive them as fast as possible. Unfortunately, this allowed thieves to fraudulently submit other people’s tax returns and claim their Earned Income Tax Credit, before they had the opportunity to file. This caused long delays for taxpayers’, whose information was used, delaying the processing of their returns for months. By delaying the processing for the Earned Income Tax Credit until mid-February, the new law helps drastically reduce tax fraud by giving people, who legitimately qualify for the refund, time to process their tax returns. This allows the IRS to have more countermeasures in place to red flag when more than one return is submitted for the same taxpayer.

After the middle of February when the IRS starts processing these tax returns, you can check Where’s My Refund on IRS.gov to check the status of your refund. You will not see a refund date until the IRS has processed your return. This is the best way to check the status of your return. Depending on when you file, your return may be processed later. However, the earliest you can expect your refund is the end of February.

The Final Note

Many factors are used to determine if you qualify for the Earned Income Tax Credit and the amount of the refund you are entitled to receive, which maxes out at $6,444. However, if you earn less than $54,998, if married filing jointly or if you earn less than $49,298, if you are single filer, you should consult a tax professional to determine if you qualify. Just keep in mind, the income limits are not the only basis for determining if you qualify, and the EITC starts being phased out for single filers who earn more than $15,309.

At the earliest, you will receive your Earned Income Tax Credit at the end of February, because the IRS will not start processing the refunds until the middle of February. Fraudulently filing for the Earned Income Tax Credit can result in being banned from claiming the credit for ten years. This can be a harsh penalty, especially if you legitimately qualify for the credit in the future. Schedule an appointment with the tax professionals at Gudorf Tax Group to make sure you qualify for the Earned Income Tax Credit. Don’t forget to bring the documents listed above, so your refund is not delayed.