Each year taxpayers leave millions of dollars in the IRS’s coffers by failing to take advantage of the Earned Income Tax Credit, or EITC. Don’t be one of them! Why should you give the U.S. federal government any more money than the law absolutely requires?
What’s the Earned Income Tax Credit?
The EITC’s intent is give a bit of a break to low and moderate income taxpayers. As opposed to a deduction, the EITC is a credit. What’s the difference? A deduction—such as mortgage interest—cuts your taxable income. But a credit lops a chunk directly off of your tax bill.
Think of it this way: If you’re in the 15% tax bracket, a $1,000 deduction puts $150 in tax savings in your pocket. But a $1,000 credit puts $1,000 in your pocket!
What’s the maximum EITC for 2016? A whopping $6,269! That should motivate you to check your eligibility!
Who Qualifies for the Earned Income Tax Credit?
Nothing’s simple in IRS-world, and EITC qualification is no exception. Here’s the gist, to qualify for the EITC:
- You must have earned income and adjusted gross income within certain limits, AND
- you meet certain basic rules, AND EITHER
- you meet the rules for those without a qualifying child, OR
- you have a child that meets all the qualifying child rules for you, or your spouse if you file a joint return.
Okay, quick: do you have a “qualifying child”? Gotta love the IRS.
Here’s a table that will help you learn whether you may qualify for the 2016 EITC based on your 2016 income. To qualify for the EITC, earned income and adjusted gross income must both be less than the dollar figures in this table:
To help taxpayers get a handle on whether they qualify for the EITC, the IRS has invented an EITC Assistant through which you can answer a few questions and get a verdict on whether you’re eligible to take the EITC on your 2016 tax return.
I tried out the Assistant; the process took me about three minutes. If the Assistant determines that you’re eligible for the EITC, you’ll need your 2016 income information handy if you want it to estimate the amount of your credit. Or you can not bother with this part and just know to claim the EITC when you get around to completing your 2016 tax return.
Earned Income Tax Credit “Special Rules”
Heads up if you’re in the military or a member of the clergy (or both!): special EITC rules apply.