The landscape · Family
The earned income credit
The earned income credit is a refundable credit for workers with lower earnings, and it grows with the number of qualifying children up to three.
Who this exists for. This exists for a worker with modest earnings, with or without children, who meets the income and residency tests. Ticks that show it: This is a low income year for me; I have children under 17; I work for an employer; I earn money on my own (freelance, gig, side work).
How it works
The credit phases in as earned income rises from zero, holds flat across a middle range, then phases out to zero at an income line that depends on filing status and the number of children. The maximum ranges from this year's official eitc max no children (not yet verified here; see the official source below) with no children to this year's official eitc max three children (not yet verified here; see the official source below) with three or more. Investment income above this year's official eitc investment income cap (not yet verified here; see the official source below) disqualifies a person for the year. A qualifying child must live with the worker in the United States for more than half the year and meet age and relationship tests, and a worker without children must be within an age range the IRS sets. Married people filing separately generally cannot claim it except under conditions the IRS lists. The IRS publishes a table and an online assistant, and software figures it from the return.
What it gives
It is fully refundable, so it arrives as a check even when no tax is owed.
The amount with children is large relative to the earnings it rewards.
Many states add their own earned income credit on top of the federal one.
What it costs, or where the catch is
The rules on who counts as a qualifying child are detailed, and an error can bar a person from claiming it for several years.
Refunds including this credit are held until mid February by law.
A small amount of extra investment income can erase the whole credit for the year.
A worked example
Lena is a single parent earning $23,000 as a dental assistant with one child, age 6. Her income sits in the flat part of the credit's shape, so she receives close to the one child maximum. If that maximum were $3,900, her refund would include the full $3,900 even though her income tax is only $400, because the credit is refundable. Her brother Marcus, single and childless at $19,000, receives a far smaller credit because the no child maximum is a fraction of hers.
Where it goes wrong
The most common error is two people claiming the same child, which the IRS catches by Social Security number and resolves with its tie breaker rules.
Who confirms it for you
For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.
The official source
IRS: Earned income tax credit. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.
Ask about The earned income credit
A model reads this page and answers from it. It will say when the answer is not on the page. Education, not personalized advice.
Nearby doors
- The employer match
This exists for anyone whose job offers a retirement plan with matching contributions.
- Traditional 401(k) contributions from pay
This exists for anyone whose employer offers a 401(k) plan and who wants to know what happens when part of a paycheck goes into it.
- The Roth 401(k) option inside the plan
This exists for a worker whose 401(k), 403(b), or 457(b) plan offers a designated Roth account alongside the traditional one.
- The 403(b) for schools and nonprofits
This exists for people who work at public schools, colleges, hospitals, churches, and other nonprofit employers that offer a 403(b) plan.
- The 457(b) and its separate limit
This exists for state and local government workers and some nonprofit employees whose employer offers a 457(b) deferred compensation plan.
- Vesting schedules
This applies when an employer puts money into a worker's retirement plan and the plan document says that money becomes the worker's over time.
Education, not advice. Wealthy Habitat explains how rules work and never recommends what to do with your money. The No Advice Disclosure.