Earned Income Tax Credit: Find Out if You Qualify

It’s time to review your income and financial details for tax year 2023. When you earn a certain amount of income, you’re obligated to pay federal income taxes, which can take a bite out of your earnings. To ease your financial burden, the Internal Revenue Service offers various tax credits for which you might be eligible, such as the earned income tax credit, or EITC.

Here’s what you need to know about the EITC and whether you’re able to take advantage of it to reduce your tax liability.

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What Is Earned Income Tax Credit?

Earned income is money that you were paid for working for someone else or money that you made from running your own business or farm. This income is also subject to FICA taxes, which fund Social Security and Medicare, which are other types of tax obligations on earned income. Here are some key takeaways to help you decipher if you qualify for the EITC 2023:

• Earned income can include wages, self-employment income, union benefits and more.

• As a refundable tax credit, the EIC 2023 is designed to benefit those who make low to middle levels of income.

• This year, the credit ranges from $600 to $7,430.

• How much you get will depend on several factors such as income, tax-filing status and the number of children you have.

• Long-term disability benefits received before reaching the minimum retirement age (but doesn’t include income like capital gains, dividends, alimony, Social Security or unemployment benefits)

• If you don’t have children you can qualify for a lower tax credit amount. Each qualifying child you claim increases the earned income and adjusted gross income, or AGI, limits.

Earned Income Tax Credit Income Limits

The earned income tax credit is only available if your income doesn’t exceed certain limits, some of which are based on your filing status and the number of qualifying children you claim. This table breaks down the earned income and AGI limits:

Earned Income Tax Credit 2023: Income Limits for Tax-Filers

The earned income tax credit gives low-income taxpayers an extra credit on their tax return as a reward for earning income and helping support their families. The credit can increase for taxpayers with qualifying children. In fact, for some taxpayers, this tax break could be worth as much as $7,340.

Do I Qualify for the Earned Income Tax Credit?

A tax credit is one of the quickest ways to reduce tax liability — it’s a direct reduction of the amount of tax owed. You must have earned income during the tax year to qualify for the IRS earned income credit. Here’s what else you need to do to qualify according to IRS.gov:

• Have worked and earned income under $63,398

• Have investment income below $11,000 in the tax year 2023

• Have a valid Social Security number by the due date of your 2023 return (including extensions)

• You cannot file Form 2555, Foreign Earned Income.

• Your filing status must not be married filing separately.

• You must be a U.S. citizen or resident alien all year.

• Neither your earned income nor your AGI can be higher than the limit for your filing status.

• Any qualifying child you claim must have a valid Social Security number that was issued before the due date for filing your tax return, including any tax extensions for which you qualify.

Filing Status and Rules for Qualifying Children

Your filing status, which determines your tax bracket, must be one of the following: single, head of household, surviving spouse or married filing jointly. You can’t claim EITC if your tax filing status is married filing separately.

Qualifying children aren’t limited to your biological children, and just because someone is your biological child doesn’t automatically mean he or she is your qualifying child. The qualifying child must meet the relationship test, age test, residency test and joint return test.

• Relationship test: The child must be your biological or adopted child, stepchild, foster child, a descendant of any of your children, a sibling, half-sibling, step-sibling or a descendant of any of your siblings.

• Age test: The child must be younger than you or your spouse and either under 19 or, if a full-time student, under age 24. The person also meets the age test if he or she is permanently and totally disabled, regardless of age.

• Residency test: The child must live with you in the U.S. for more than half of the year.

• Joint return test: The person cannot file a joint tax return with a spouse unless the child’s spouse wasn’t required to file and only filed to obtain a tax refund.

Claiming the Credit With No Qualifying Children

You’re not required to have qualifying children to benefit from the EITC 2023. Although the credit will be limited, you can still claim it as long as you meet the basic criteria as well as these additional criteria:

• You lived in the U.S. for more than half the year.

• No one else can claim you as a dependent or qualifying child on their income tax return.

• You are younger than 65 and at least 25 at the end of the year.

Final Take To GO

The basic qualifications for getting the earned income tax credit include working and earning income under $63,398, having investment income below $11,000 and having a valid Social Security number by the due date of your 2023 return. Since taxes are unavoidable, it’s always good to know when you can catch a little break, or at least some credit.

FAQ

• What qualifies you for earned income credit?

  • Though there are several restrictions and rules for qualifying for the earned income credit for the 2023 tax year, here are some basic qualifications:

    • Need to have worked and earned under $63,398

    • Have investment income below $11,000.

    • Have a valid Social Security number by the due date of your 2023 return

• How do you calculate the earned income credit?

  • To calculate your earned income credit you assess if your AGI is greater than your earned income, the difference being your earned income tax credit. Your AGI is then compared to the amount you would have received with your earned income, and the lower of these two amounts is your earned income credit.

• What does EIC 2023 mean?

  • EIC stands for earned income credit, and for the 2023 tax year, the credit can range between $600 to $7,340 for qualifying taxpayers.

• What is the EITC income limit for 2023?

  • The earned income credit 2023 income limit is as follows:

    • 0 children: Income must be less than $17,640

    • 1 child: Income must be less than $46,560

    • 2 children: Income must be less than $52,918

    • 3 or more children: Income must be less than $56,838

John Csiszar, Gabrielle Olya and Michael Keenan contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: Earned Income Tax Credit: Find Out if You Qualify