Taxes can be a huge burden for low-income Americans who need every penny they can get to pay the bills. Thankfully, there are tax credits available to help lower earners make ends meet. One such credit is the Earned Income Tax Credit. The Earned Income Tax Credit, or EITC, is a federal tax credit that can save eligible low-income Americans money on their taxes. You must meet certain criteria to file for the EITC, but if you qualify, you could receive up to $6,318 for 2017. Best of all, the EITC is refundable, which means that if it reduces your tax liability to $0, you'll actually get a check for the difference.
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Tax credits versus deductions
Some people use the terms "tax credit" and "tax deduction" interchangeably, but in reality, they're not the same thing. A tax deduction reduces your taxable income, while a tax credit is a dollar-for-dollar reduction of your tax liability. If you're eligible for a $3,000 tax deduction and your effective tax rate is 25%, that deduction will save you $750 in taxes. But if you get a $3,000 tax credit, it'll save you $3,000 in taxes.
Now many tax credits are non-refundable, which means that if they reduce your tax liability to $0 with money left over, you won't be eligible to receive the difference. The EITC, however, is refundable, which means that it has the potential to put even more money back in your pocket. Let's say you owe $2,000 in taxes but are eligible for an EITC credit in the amount of $3,400. Because the EITC is refundable, you'll actually get a check for $1,400.
How do I get the Earned Income Tax Credit?
There are certain criteria you must meet to be eligible for the EITC. To qualify, you must have earned income from a job or business that you own. Furthermore, your tax filing status must be single, married filing jointly, head of household, or qualifying widow. Additionally, for 2017, your investment income for the year can't exceed $3,450.
There are also income limits that determine your eligibility to receive the Earned Income Tax Credit, and they depend on the number of qualifying children you have in your household. The following table shows what the 2017 EITC income limits are based on your tax filing status and number of qualifying children:
TABLE BY AUTHOR. DATA SOURCE: INTERNAL REVENUE SERVICE.
How much can I get from the Earned Income Tax Credit?
The amount of money you get from the EITC depends on your income and number of qualifying children. For 2017, the maximum you'll receive from the EITC is:
- $6,318 if you have three or more qualifying children
- $5,616 if you have two qualifying children
- $3,400 if you have one qualifying child
- $510 if you don't have any qualifying children
Don't pass up free money
To benefit from the Earned Income Tax Credit, all you need to do is claim it on your tax return. Surprisingly, an estimated 20% of eligible tax filers fail to claim the EITC and lose out on much-needed money each year as a result. If you're a low earner, it pays to see whether the Earned Income Tax Credit could lower your taxes or, better yet, put extra cash back in your pocket this year.
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