You are not the only one who wants to know what is the earned income tax credit (EITC). It is a big federal tax break that may be refunded. It is meant to help low- and moderate-income workers (especially families) earn more money.
Earned Income Tax Credit (EITC)
The earned income tax credit (EITC) offers a dollar-for-dollar decrease in your federal tax liability. If the credit exceeds what you owe, you get the excess as a refund. EITC is also known as the earned income credit (EIC).
Read: What is a VAT number in the US?
Who Benefits From EITC?
EITC is helpful mainly for people and families who do a job. The amount you may get depends on your:
- Monthly or annual income
- Filing status
- Children
For the 2025 tax year, maximum credit amounts range from $649 (no children) to $8,046 (three or more children).
To be eligible, your claimed income must stay below certain levels, which depend on your filing status and number of children.
Basics Criteria of Eligibility for EITC
To get the EITC, you need to:
- Earn money through legal means: labor, job, self-employment.
- Meet specific income levels based on your filing status and family size.
- Have legal Social Security numbers for yourself, your spouse, and any children who meet the requirements.
- Be a US citizen or resident and have resided in the US for more than half a year.
There are also certain limits: for the tax year 2025, investment income cannot be more than $11,950.
Read: What is a tax district?
How EITC Works and Why It Matters?
The EITC is meant to help people get out of poverty. It starts to work when you make more money and stops working when you make too much money. This way, it helps the working poor the most. Because it may be refunded, even those not paying much in taxes can get a significant cash return.
Unluckily, nearly 20% of people who qualify for this credit fail to utilize it each year, losing billions of dollars in refunds.
Read: Do you have to pay property taxes on land you own?
How to Claim EITC?
To claim the EITC, you need to fill out Schedule EIC and Form 1040. If you have kids who rely on you, be sure to enter their information correctly.
Because of federal regulations, returns that include this benefit (plus the Additional Child Tax Credit) are generally kept until mid-February.
The Bottom Line
Comprehending what is the earned income tax credit (EITC) is one of the best ways to lower your taxes. You can get more money back if you meet the requirements. It is hard to figure out whether you qualify. However, doing so can save you a lot. Getting help from L&Y Tax Advisor speeds up the procedure and helps you get the highest returns possible.
