The Federal government allows for two types of credits that are able to be claimed on one’s tax return, either refundable or non-refundable. A refundable credit means that you can receive money over the amount of your tax liability, whereas non-refundable credits merely reduce your tax liability.
The Earned Income Credit came about during the Tax Reduction Act of 1975 and was meant to offset the Social Security payroll tax. It was originally signed in as a temporary credit but was made permanent by the Revenue Act of 1978.
How Much Will It Give Me?
The maximum you can receive from the Earned Income Credit is $6,431, and that amount is able to be claimed if you have 3 or more qualifying children and your adjusted gross income is less than $49,194 ($54,884 for married filing jointly).
Smaller amounts can be claimed for fewer qualifying children and lower adjusted gross incomes, all the way down to no qualifying children and earned income of $15,270 ($20,950 for married filing jointly) being able to claim $519.
For the full list of amounts, click here.
How Do I Know If I Can Claim It?
If you do not have a qualifying child and still would like to claim the Earned Income Credit, then you must meet a few rules:
- You and your spouse cannot be claimed as a dependent on someone else’s return
- You and your spouse have to be between ages 25 and 65 years old at the end of the tax year
- You cannot file married filing separately
- You have earned income and adjusted gross income within the limits (for the limits, click here)
- You and your spouse must have lived in the United States for at least half of the year
If you are claiming the Earned Income Credit and have qualifying children, then you must meet additional rules below to claim them:
- Relationship test- must be: your child, adopted or biological; stepchild or foster child; or a descendent of any of these (grandchild). Additional: siblings, whether half or fully biological, step-sibling, or a descendent of any of these
- Age test- The child must be younger than you and your spouse at the end of the year and younger than 19. Another option is if the child is younger than 24 and a full-time student. With this option, the child must still be younger than you. And finally, the child could have been any age but was permanently and totally disabled.
- Residency test- The child must have lived with you or your spouse for at least half of the year in the United States
- Joint Return test- The child could not have filed a joint return for the tax year. The only exception for this rule is if the child only filed a joint return to claim a refund and the child’s spouse did not have a separate filing requirement.
This article does not constitute financial advice. For information regarding your specific situation, please consult your local financial advisor.