Qualifying for the EIC

How do I qualify for the Earned Income Tax Credit?

One of the most popular tax credits is the Earned Income Tax Credit. This refundable income tax credit is targeted at low- to moderate-income working individuals and families. The EITC (usually called just EIC) was approved by Congress in 1975 as a way to offset the burden of Social Security taxes and to provide an incentive to work.

The EIC is a refundable credit, meaning it can give you a tax refund if you qualify – even if you don’t owe any tax. But you do have to file a tax return to get the credit, plus meet certain requirements.

What does the IRS count as earned income?

You need earned income to qualify for the Earned Income Tax Credit. Apparently, some folks have the mistaken idea that they can apply for the EIC when they have no income, earned or otherwise. Not so.

Here are the types of income that do not count as earned income:

• Interest and dividends
• Pensions or annuities
• Social security
• Unemployment benefits
• Alimony
• Child support

So if your only source of income is listed above, you cannot claim the EIC.

Taxable earned income that does qualify for the EIC includes:

• Wages, salaries, tips, and other taxable employee compensation
• Union strike benefits
• Disability retirement benefits received prior to minimum retirement age
• Net earnings from self-employment if:
  • You own or operate a business or a farm or
  • You are a minister or member of a religious order (see Special Rules page for more information);
  • You are a statutory employee and have income. (See definition of statutory employee on the Helpful Definitions and Acronyms for the EITC page).

In short, there are two ways to get earned income: You work for someone who pays you, or you own or run a business or farm.

What are the income limits to qualify for the EIC?

If you make more than a certain income limit, you won’t qualify. For tax year 2020, the rates are:

In all cases, investment income must be $3,650 or less for the year, or you’re disqualified.

If you’re not sure whether your wage situation qualifies for the Earned Income Tax Credit, check IRS Publication 4935, Guide to Earned Income Tax Credit.

How much is the EIC worth?

The EIC is calculated based on your AGI, so here are the maximum amounts you could receive:

• No qualifying children: $538
• 1 qualifying child: $3,584
• 2 qualifying children: $5,920
• 3 or more qualifying children: $6,660

Are there other requirements besides earned income to qualify for the EIC?

If you pass the income test, there are other requirements you must satisfy before being deemed eligible for the EIC.

First, you must also be a U.S. citizen (or resident alien living in the U.S. all year) with a valid Social Security Number. You can’t be filing as married filing separately, and you can’t be considered a qualifying child of another taxpayer.

If you’re a member of the American Armed Forces, serving in a combat zone, some special rules apply.

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For more details, take a look at our Earned Income Credit infographic.