What is the Earned Income Tax Credit (EITC)? Do I qualify?

The Earned Income Tax Credit (EITC) is a federal tax credit which is designed to transfer money to low-income and middle-income working individuals and families. Like all tax credits, the EITC not only reduces your tax liability but can also be refunded through your tax refund if the credit is larger than your tax liability. Your tax liability is the amount of taxes that you need to pay on your income, which is typically automatically taken out of your paycheck by your employer.

The EITC amount that you receive is based on the income that you have earned throughout the year. The amount of the tax credit increases as you make more income up to a certain amount. It then begins to phase out after you reach a certain income and phases out completely if you have earned the maximum income eligible for the credit. This means that the EITC is set up to encourage individuals to continue to work, as opposed to other welfare programs which simply decrease as an individual’s income gets larger. If your employer has been taking out your taxes from your paycheck every week, then you should expect to receive the full amount of your tax credit in the form of a refund after you file your taxes. Whether you qualify and how much you should expect to receive from the EITC is explained below.

 

Do I qualify for the Earned Income Tax Credit?

In order to qualify for the EITC, you must have earnings from a job and the earnings must be reported on your tax forms. A simple example of how the EITC can work for you is explained after the tables below.

Here are the maximum incomes that qualify for the EITC in 2016:

Maximum Incomes Eligible for the Earned Income Tax Credit
  Amount of children claimed on tax returns
  Zero One Two Three or more
Single $14,880 $39,296 $44,648 $47,955
Married Filing Jointly $20,430 $44,846 $50,198 $53,505

 

Here are the maximum amounts of EITC refund you can receive:

Maximum amount of Earned Income Tax Credit possible
  Amount of children claimed on tax returns
  Zero One Two Three or more
Maximum amount of EITC refund $506 $3,373 $5,572 $6,269

 

Here is the income at which the EITC ends the phase-in period and begins to phase-out (in other words, these are the incomes which maximize your EITC and any income above this will mean a smaller EITC until reaching 0 at the max income stated above):

Income range which maximizes the Earned Income Tax Credit/When phase in ends and phase out of EITC begins
  Amount of children claimed on tax returns
Zero One Two Three or more Zero One Two Three or more
Phase in of EITC ends Phase out of EITC begins
Single $6,610 $9,920 $13,930 $13,930 $8,270 $18,190 $18,190 $18,190
Married Filing Jointly $6,610 $9,920 $13,930 $13,930 $13,820 $23,740 $23,740 $23,740

 

Here are the phase in and phase out rates of the EITC (further explanation below):

Rates of phasing in and out for the EITC
  Amount of children claimed on tax returns
Zero One Two Three or more Zero One Two Three or more
  Phase in rate Phase out rate
Single 7.65% 34% 40% 45% 7.65% 15.98% 21.06% 21.06%
Married Filing Jointly 7.65% 34% 40% 45% 7.65% 15.98% 21.06% 21.06%

 

Let’s use a simple example in order to fully understand how the EITC works. Imagine you are a single person with no children and you make $8,270 in the year 2016. You should expect to get a refund of $506 from the EITC alone. However, let’s say that instead of making $8,270 you make $14,880 or more as a single, childless individual. Then you should expect to get nothing from the EITC. If you make something in between these values, then you should expect the phase out rate of 7.65% to decrease your EITC amount by $7.65 for every $100 you make that is more than $8,270.

If you make less than the phase-in end point of $6,610 for a single person with 0 children, then you should expect the 7.65% phase-in rate to increase your EITC amount by $7.65 for every $100 dollars you make up to $6,610. So if you only make $100, then you should expect $7.65 from the EITC alone. If you make $1000, then you should expect to receive $76.50. Any amount between $6,610 and $8,270 will get you $506 from the EITC.

Hopefully this has explained how the EITC works in a simple manner. If you have any objections questions, comments, or concerns, then feel free to let me know in the comments section below!

Source: Internal Revenue Code, 26 U.S.C. §32(b).

Related News

Leave a Reply

Your email address will not be published. Required fields are marked *

Copyrıght 2013 96down. All RIGHTS RESERVED.

>