2023 Earned Income Tax Credit: How Does It Work?
As tax season approaches, it’s important to understand the various tax credits available to you. The Earned Income Tax Credit (EITC) is a significant financial assistance program for eligible taxpayers with low to moderate income.
In this simple yet comprehensive guide, we’ll dive into the intricacies of the EITC, its purpose, and how to qualify and claim the credit to strengthen your tax strategy.
What is the Earned Income Tax Credit?
The EITC, often referred to as the EIC, is a refundable tax credit aimed at providing financial support to taxpayers with low to moderate incomes, regardless of whether they have qualifying dependents. Its primary purpose is to reduce poverty and alleviate the financial burden on eligible individuals and families.
In fact, the EITC lifted roughly 5.6 million people out of poverty in 2018, underscoring its pivotal role in improving financial stability.
Since it’s a refundable tax credit, you could receive a refund for the extra amount if the credit is more than your tax bill.
You may also qualify for the Child Tax Credit, so learn more in our other article!
What are the 2023 Earned Income Tax Credit Amounts?
The EITC amount varies based on several factors, including your income, the number of qualifying children, and your filing status. In the 2023 tax year, the credit amount ranges from $600 to $7,430. The EITC increases with earnings and gradually phases out as income levels rise.
Below are the limits and potential credit amounts for this year:
| Number of Children | Max AGI for Single FIlers | Max AGI for Joint Filers | Max Credit Amount |
|---|---|---|---|
| 3 | $56,838 | $63,698 | $7,430 |
| 2 | $52,918 | $59,478 | $6,604 |
| 1 | $46,560 | $53,120 | $3,995 |
| 0 | $17,640 | $24,210 | $600 |
Who Qualifies for the Earned Income Credit?
To qualify for the EITC, you must:
Have earned income during the tax year you claim it (pensions and unemployment income do not count).
Not have made more than $11,000 in investment income.
Have a valid Social Security number by the due date of your 2023 return.
Be either a U.S. citizen or a resident alien throughout the year.
Note: Special rules apply to members of the military, clergy, individuals receiving disability income, or those with dependents who have disabilities.
What if I don’t have qualifying children?
Many taxpayers fail to claim this credit, thinking they’re ineligible because they don’t have children, but it is not limited to families with children! You may still be eligible for the EIC if you:
Are between 25 and 65 years old. This goes for couples filing jointly, in which only one spouse must meet the age requirement.
Live in the U.S. for more than half of the tax year.
Have not been claimed as a dependent on someone else’s tax return.
What if I’m separated but still married?
Even if you’re legally separated but still married, you may still qualify for the EIC as long as:
You do not file a joint tax return.
Your child lived with you for more than half the year.
You have not lived with your spouse during the last six months, OR you have a separation agreement/decree.
Do you pay for child or dependent care? You might be eligible for the Child and Dependent Care Tax Credit.
Does My Child Qualify for the EITC?
To qualify, each dependent you claim for the EITC must meet age, relationship, and residency requirements. You will also need each qualifying child’s Social Security number and birthdate.
Age
The qualifying dependent must be:
Below age 19 at the end of the year and younger than you (or your spouse, if you file jointly)
Below age 24 at the end of the year if they were a full-time student.
Permanently and totally disabled, in which case there is no age limit.
Relationship
Any of the following can be an eligible child for the EITC:
Biological child, stepchild, adopted child, or foster child
Sibling, half-sibling, or step-sibling
Grandchild, niece, or nephew
Residency
Your qualifying child must live in the same home as you in the U.S. for more than half of the tax year. This includes all 50 states, Washington, D.C., and U.S. military bases. Territories like Guam, the Virgin Islands, or Puerto Rico do not count.
How Do I Claim the Earned Income Tax Credit?
If you are eligible for the EITC, you must file Form 1040 or 1040-SR along with Schedule EIC to provide the IRS with information about your qualifying child(ren).
Some states have their own EITC. If you file a state return in a state with its own credit, you would claim the EITC on it. Most state-level credits match a percentage of your federal credit amount, meaning a potentially higher tax refund! Check if your state has a state-level tax credit.
Leverage the Earned Income Credit
Understanding the Earned Income Credit can significantly impact your taxes, lightening the financial load. And remember, it’s available to low and moderate earners, with and without children!
If the thought of tax credits and preparation overwhelms you or you want to maximize your benefits, we’re here to help! Our pros are here to guide you through the tax landscape, ensuring you’re filing correctly and taking full advantage of tax credits like the EITC. Contact JLS Accounting today and make your tax season a breeze.