Can the Earned Income Tax Credit Help You?

Every year in January, the IRS dedicates a day to Earned Income Tax Credit (EITC) awareness. This tax credit allows eligible people with low-to-moderate income to get a tax refund of up to $7,830. This year, the IRS expects millions of workers to qualify for the credit for the first time. Therefore, spreading the word about EITC and its eligibility criteria is important.

Also, a recent study by Stanford University and the U.S. Treasury Department discovered that the IRS conducts audits on certain taxpayers at higher rates, partly due to the EITC. That's why it's also essential to understand how the earned income tax credit works and its potential impact on IRS audit risk. 

Earned Income Tax Credit awareness

The EITC, sometimes called the earned income credit, is a refundable tax credit for individuals with low to moderate incomes. Unfortunately, many eligible individuals are unaware of the credit or don’t know how to claim it, resulting in it being overlooked. 

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• Communities at risk of missing out on the EITC: Veterans, low-to-moderate-income households without children, disabled individuals, and those living in nontraditional homes, according to the IRS.
• Workers' eligibility for the earned income credit can change due to life events such as job loss, divorce, becoming a parent, or getting married.
• A group that often overlooks the EITC is workers with low-to-moderate income who don’t have children. That is partly because many think you must have a child to claim the earned income tax credit. However, you can still claim the EITC even if you do not have a qualifying child. For the 2023 tax year, in that case, the EITC can be as much as $600.

In recent years nationwide, the IRS says that 23 million eligible workers and families received about $57 billion in earned income credits. The average earned income credit amount received last year was over $2,500. 

What is the Earned Income Tax Credit?

The EITC is a refundable tax credit generally designed for people whose earned income was under $63,698 last year. “Earned income” is all the taxable income, including wages, you receive either from a job or self-employment. 

• Because the EITC is a refundable credit, it can lower the amount of taxes that you owe. 
• The EITC can result in a tax refund after you file your tax return. 

Various rules for claiming the EITC depend on several factors including your adjusted gross income, filing status, and whether you have a “qualifying child.” 

Earned income tax credit eligible

A “qualifying child” must have a valid social security number and cannot be claimed by more than one person on a tax return. Also, qualifying children are generally under the age of nineteen. But they can be any age if they have permanent or total disabilities. (There are other requirements for qualifying children under age 24 who are full-time students.)

Note: You must file a federal income tax return to receive the EITC. (That’s true even if you aren’t usually required to file a return or don’t owe any tax.) 

Also, to claim the EITC, your investment income  (if any) cannot exceed $11,000 for the 2023 tax year (returns being filed now) and $11,600 for 2024 (tax returns you’ll file in early 2025).

What is the EITC for 2023?

For the 2023 tax year, if you had three or more qualifying children, the EITC is up to $7,430. The credit amount goes down with fewer qualifying children and as mentioned, no qualifying children. 

For example, for tax returns you’ll file early this year, the 2023 EITC is up to $3,733 if you have only one qualifying child. However, if two qualifying children are in your family, the credit could be as much as $6,604.

Note: Different income limits apply to each filing status depending on the number of qualifying children. The IRS has a chart on its website to help you determine what range applies to your federal tax return.

Earned income credit rules and requirements can be confusing, so you can check to see if you can claim the EITC by visiting www.IRS.gov/eitc. You can also see IRS Publication 596, which explains the rules and requirements for the EITC.

EITC 2024

The maximum earned income credit for 2024 (tax returns normally filed in early 2025) is currently $7.830. For more information, see Kiplinger’s report on the 2024 EITC and other popular family tax credits.

How to claim the EITC on your tax return 

The IRS reminds taxpayers that you can determine your eligibility and file and claim your EITC for free using the agency’s online EITC Assistant at www.irs.gov.

• If you made $64,000 a year or less in 2023, you can access free tax return preparation services available at more than 13,000 community volunteer tax assistance sites.
• Also, if you made $79,000 or less in 2023, you can electronically file your return to claim your EITC using IRS Free File. 

EITC Refund

It is important to note that if you claimed either the EITC or additional child tax credit, the IRS cannot issue your refund before mid-February. This means the IRS will hold the entire refund and they cannot release a partial refund. If you chose direct deposit and there are no other issues with your tax return, the IRS has said that the earliest EITC/ACTC-related refunds will be available in bank accounts or debit cards is the first week of March.

You can track the status of your EITC refund with the “Where’s My Refund?” tool available on IRS.gov or the IRS2Go mobile app.

Can claiming the EITC trigger an IRS audit?

Findings from a study done by Stanford University with help from economists from the U.S. Treasury Department show that claiming the EITC is an audit red flag for some taxpayers. 

• The study found that Black taxpayers were audited by the IRS three to five times more often than non-Black taxpayers, including Hispanics. 
• The IRS and auditors reportedly don't consider race when selecting audits. 
• However, algorithms disproportionately targeted Black taxpayers who claimed the EITC on their tax returns.

So, what does this mean for you? If you claim the EITC, remember that the IRS traditionally uses algorithms to identify tax returns for audits that partly focus on that credit. Consult a professional if you’re worried or confused about how to claim qualifying children for the credit. Depending on your income, you may be able to get free assistance with preparing your tax return.

State Earned Income Tax Credits

You might be eligible for an earned income credit on your state tax return.  Several states and the District of Columbia, plus New York City, offer versions of the earned income credit.

To learn more about whether your state offers an earned income credit and whether you can claim it, visit the IRS information page on state and local governments with earned income tax credits.

Related

• Will Your Tax Refund Be Less This Year?
• IRS Promises Fewer Audits of the Earned Income Tax Credit
• Best States for Middle-Class Families