Earned income tax credit, also known as EITC or EIC, is a tax credit aimed at helping working people with low to moderate incomes. It is a refundable tax credit. It not only reduces the amount of tax you owe but may also give you a refund once your tax liability is below $0. In order to earn EITC, you must prove that you are eligible and file a tax return even though you owe no tax or are not required to file.
The Qualifications of Earned Income Tax Credit
There are quite a few requirements for EITC.
To qualify, you must be working and earning income from employment by someone or from running or owning a farm or business.
And you must also meet basic rules. The most important qualification is that you earn less than $3,650 for the 2020 tax year from your own investment, which includes interest, dividends, rents, royalties, and capital gains.
Besides, if you plan to apply for EITC, your gross income must be lower than a certain threshold, which is decided by how many children you have.
- Without children, your annual gross income must be lower than $15,820 if you’re single, or the head of household, or widowed.
- The figure will be $21,710 if you’re married, filing jointly with your spouse.
- If you have only 1 child, the threshold will be $41,756 for you if you’re single, or the head of household, or widowed ($47,646 if you file jointly with your spouse).
- If you have 2 children, the figure will be $47,440 and $53,330 in the two situations respectively.
- And if you have 3 or more children, your annual gross income must be lower than $50,594 and $56,844 respectively. Now you may have noticed that EITC is literally helpful to families that have a few children to feed while earning low or moderate incomes.
IRS advises that, once you claim the EITC and the additional child tax credit on your tax return, you should track your refund on their official mobile apps. And you might receive your refund several days after mid-February.