Federal Tax Credits

Earned Income Tax Credit

The earned income tax credit or EIC is a tax credit designated for low-income earners and middle-income families. Those who qualify can walk away with paying little to no in income taxes. Since the earned income tax credit is refundable dollar-for-dollar, it can boost the taxpayer’s tax refund significantly.

It was first introduced for encouraging everyone to work regardless of filing status or household size. If your income is little, you surely can claim this tax credit to reduce taxes owed. If the taxes owed is less than what you’ve withheld, you will get the full amount of the earned income tax credit refunded to you. This is—without a doubt— the best aspect of the earned income tax credit.

When you file a 2020 tax return in 2021, if your annual income is less than $41,100 to $550,952 (subject to change) you will qualify for the earned income tax credit. However, as your income goes higher than $41,100, the earned income tax credit amount will be reduced. With that said, how much a taxpayer can claim in earned income tax credit depends on his or her income (not AGI), marital status, and the number of dependents under the age of 17 such as your children.

To determine your eligibility and if so, how much you can claim as part of this tax credit, we suggest using the IRS EITC Assistant. This is a tool where you enter the required information on your anticipated tax return and see whether you’re eligible or not. Click the links below to see if you can claim the EITC. It is available in English and Spanish.

IRS EITC Assistant (English)

IRS EITC Assitant (Spanish)

Refundable Portion of EITC

The EITC, same as the Child Tax Credit, it is refundable. However, while only a large portion of the Child Tax Credit is refundable, the EITC is refunded dollar-for-dollar. This means if you don’t owe taxes with or without the EITC, the credit amount will be refunded to you. Here are two examples of refunded EITC.

Example 1

Tax Bill: $3,000

Federal Income Tax Withheld: $1,000

Taxes Owed: $2,000

Earned Income Tax Credit: $3,100

Tax Refund: $1,100

Example 2

Tax Bill: $3,000

Federal Income Tax Withheld: $4,000

Taxes Owed: $0

Tax Refund Before EITC: $1,000

Earned Income Tax Credit: $3,100

Tax Refund After EITC: $4,100

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