The Earned Income Tax Credit (EITC) is a tax break for the low and moderate income employees. It relieves the tax burden by reducing the tax amount that the individuals owe to the IRS (Internal Revenue Service). The government understands its worth in supporting the eligible families with additional instant credits. It is largely determined by the number of children the individual person has. The number of children ascertains the ETIC amounts.
It is different from tax deductions as the EITC reduces the tax owed whereas the tax deductions depend on the tax brackets. Suppose your income falls in the tax bracket of 12%, and then through tax deductions, only the 12% of the proposed EITC amount will be deducted. Understand this by an example, if your tax bracket is 12% and the proposed earned income tax credit is $600, then only 12% of $600 EITC will be deducted from the due taxes. Therefore, the EITC is more valuable and remunerative for the individual tax payers.
Earned Income Tax Credit 2024
- As its name suggests this tax credit is being reimbursed on the earned income. The annual income that the individual tax payers from a particular income class earn determines the amount of tax credit. It is accessible for the employees who are actively engaged in working. The individuals who have reached the age of retirement cannot avail the EITC. In order to get this credit, you are required to pay the taxes to the IRS. This should also be noted that the EITC is refundable in case you have received bigger tax credits than what your actual due tax is, then you need to refund the extra tax credits that you are paid.
- The individuals can file for the EITC only on the basis of earned income which is decided by various factors. Apart from availing it on the basis of earned income, there is also an income cap exceeding which results in no tax credits from the issuers. Each year the IRS increases the ETIC amounts along with the annual income cap adjusted with the current inflation rates. Check out maximum tax credits and Adjusted Gross Income for families and single income tax filers in 2024.
Earned Income Tax Credit Quick Overview
| Number of Dependents (Children, Parents, Spouse) | Maximum Earned Income Tax Credits in 2024 | AGI Limits for Single, Divorced, Head of family and Widowed Filers in 2024 | AGI for Married Couples and Joint Filers in 2024 |
| 0 | $632 | $18591 | $25511 |
| 1 | $4213 | $49084 | $56004 |
| 2 | $6960 | $55768 | $62688 |
| 3 and More | $7830 | $59899 | $66819 |
What is Earned Income?
The IRS considers a selected amount of income as earned income on which you can make tax credit claims. The wages you have earned while working for a business, self employed or engaging in a farm.
Kinds of Earned Income the following
- Income earned from self employment
- Union strike benefits
- Wages and salary where income taxes are withheld
- Tips
- Income from gig economy work where the employer did not withheld the tax
- Gig work such as providing creative and professional services
- Selling goods online
- Running errands or doing tasks
- Doing freelancing or on demand work
- Other services for on demand
- Disability benefits received till the age of minimum retirement
Earned Income does not include
- Alimony and child support from former common law partner
- Social security benefits
- Monthly pensions and annuities
- Unemployment benefits
- Interest and dividends
- Money earned while serving as an inmate in any penal institution
Qualified Individuals for ETIC
The low and moderate income households are eligible for the tax credits. Apart from meeting the above mentioned annual income criteria, the individuals are required to meet the following criteria too
- Investment income below $11000
- Have a US residency or a resident alien for the tax year 2023
- Also possess a social security number valid for employment in all the US states and it is issued before the date to due tax return
- Have not filed form 2555, the income you have earned in a foreign country excluded from the ETIC
- Income tax filing status
Filing Status- you can claims the ETIC for single tax filers or married tax filers. The rules and guidelines for both the categories of filers differ as per their status
If you are filing as one of these following categories such as a head of household, single, married filing separately, qualifying surviving spouse, the rules and regulations are not much different. But for the married couples filing jointly, they have separate guidebook
If you are married and not staying with the spouse for the past six months and sharing or fully having the custody of the children and you have not filed the income taxes, you have claim the ETIC.
There are special rules if you and your partner are resident aliens. Check out the IRS’s website to know more about the following
- The Individual Taxpayer Identification Number is not required
- The Adoption Taxpayer Identification Number unnecessary
- The social security Cards which has social security number mentioning “not valid for employment”
Special Qualifying Rules
- military members
- clergy members
- taxpayers and their dependents with certain disabilities
*check out the official website to know special Qualifying Rules
How Disability Benefits does not Rule Out ETIC?
Various types of retirement and union strike benefits rule out the ETIC but there are some disability benefits which are deemed as the earned income. If you are getting disability retirement benefits, they will be counted as earned income and you can claim for the EITC. If you are getting disability insurance payments your benefits will not be considered as earned income if you have paid for the disability premiums. The disability benefits such as social security disability insurance, supplemental security income and military disability pensions cannot earn you ETIC.
It has already been cleared out that the earned income tax credit is a refundable amount. The excess amount that you have been paid should be refunded by you. And only the eligible families from low and moderate income will be able to access to the ETIC. You still have any doubts unaddressed, please follow the IRS’s official website for more.
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Renu bringing her experience as a passionate Content researcher. Renu’s interest in philosophy propelled her to pursue a degree in international relations and a master’s in Journalism . At Sass News Portal, She combines her knowledge of political economy and personal finance to empower readers by providing answers to their most pressing questions.