What is the Earned Income Tax Credit? 

The Earned Income Tax Credit (EITC) is a refundable tax credit designed to support low- to moderate-income workers and their families aimed at reducing the amount of tax owed, and, in some instances, can even entitle taxpayers to a refund. 

Key Takeaways: 

• The EITC helps low- and moderate-income workers by providing a tax credit that can reduce taxes owed or, in many cases, offer a refund—even for those with no tax liability.
• The credit amount depends on income, filing status, and the number of qualifying children, with larger credits generally for families with children. There are also income phase-out limits as earnings increase.
• Receiving the EITC can influence eligibility for other government aid, like healthcare subsidies and utility assistance, as increased income may affect thresholds for these programs.

To qualify for the EITC, you need to meet specific requirements related to your income, filing status, and—if applicable—the number of qualifying children. The table below summarizes the 2024 income limits for different filing statuses and number of qualifying children:

In addition to income thresholds, there are a few other factors to consider. To begin with, your investment income must be $11,600 or less to qualify for the EITC. Furthermore, if you have children, they must meet certain tests, including:

• Age Test: A child must be under 19, or under 24 if they are a full-time student, or any age if permanently and totally disabled.
• Relationship Test: The child must be your biological child, stepchild, grandchild, foster child, or a sibling or their descendant.
• Residency Test: The child must live with you in the United States for more than half of the year.

The EITC phases in as earned income increases, meaning the credit grows as your income rises, reaching its maximum value based on the number of qualifying children. However, once your income surpasses a certain threshold, the credit begins to phase out such that households with higher incomes may see their credit gradually reduced, and those with incomes above the upper limit may not qualify for the credit at all.

Lastly, if you are claiming the EITC without children, you must be between the ages of 25 and 65, and if you’re married and filing jointly, only one spouse needs to meet this age requirement.

How to Claim the EITC

To claim the EITC, you must file a federal tax return, even if you owe no taxes. For these purposes, you should use Form 1040 or 1040-SR, and if you are claiming the credit with qualifying children, you will also need to complete Schedule EIC to provide details about your dependents. Furthermore, you should ensure you have documentation to prove your eligibility, such as earned income statements (W-2s, 1099s) and, if applicable, proof of your children’s relationship and residency.

Fortunately, the IRS has a handy online tool, called the EITC Assistant, that can help you determine your eligibility and estimate your credit based on your income, filing status, and the number of qualifying children.

Note: EITC eligibility criteria and figures are determined based on finalized IRS guidelines for each tax year. As of now, resources like the IRS EITC Assistant reflect prior years (e.g., 2021–2023) because the IRS has not yet released final calculations or forms for 2024. Updates for the current tax year are typically made available mid-year, so it’s important to consult the IRS website or your tax preparer for the most accurate and current information.

Potentially Negative Impacts 

For all the benefits the EITC offers low- and moderate-income households, it can also have several indirect potentially negative consequences beyond taxes, including. 

• Impact on Government Benefits: Although the EITC itself isn’t counted as income for programs like Medicaid or SNAP, the additional earned income incentivized by the EITC can affect overall eligibility. Crossing certain income thresholds due to the extra income earned from work may reduce or eliminate access to these crucial benefits. Recipients must carefully monitor their total household income to avoid inadvertently losing certain support they rely on.
• Healthcare Premium Tax Credits (ACA Subsidies): While the EITC is excluded from modified adjusted gross income (MAGI) for the purposes of ACA healthcare subsidies, an increase in earned income may still shift a household into a higher income bracket, reducing or eliminating subsidies under the act. This could make healthcare premiums more expensive and complicate matters for those relying on subsidies to afford insurance.
• Utility Assistance Programs: Programs like LIHEAP assess household income to determine eligibility for utility assistance. If increased earned income pushes a family’s income beyond the threshold for these programs, they may lose access to utility subsidies, increasing their monthly expenses for essential services like electricity or heating.