Earned Income Tax Credit 2023: What It Is and How to Qualify
Are you a hard-working American trying to make ends meet? If so, the Earned Income Tax Credit (EITC) may be the key to getting the most out of your income. It applies to any taxpayer, whether you’re an employee, freelancer, or self-employed individual, who has worked in the last year.
Every year since 1975, millions of individuals and families across the United States have benefited from this unique tax credit program by taking advantage of EITC benefits. In 2023, those same benefits are expected to continue — so what is EITC all about, and how can you take advantage of the tax credit?
In this comprehensive guide, we'll discuss what constitutes "earned income," how you qualify for the Earned Income Tax Credit in 2023 and answer any other questions concerning this useful tax tool. Read on if you're looking for a way to put a little more cash back in your pocket this tax season.
What Is the Earned Income Tax Credit (EITC)?
The Earned Income Tax Credit (EITC) is a credit available to lower-income individuals and families and helps taxpayers keep more of their hard-earned money. This federal tax credit offers refunds to eligible taxpayers, which could mean thousands of dollars in additional earnings.
It was created out of an effort to reduce the amount of taxes that are paid by working people living in poverty and also provide them with additional financial support. EITC is one of the nation's most effective tools in fighting poverty and profoundly impacts many low-income families across the country.
How Does EITC Work?
With EITC, qualifying individuals and families can reduce their taxes owed or even receive a refund if they have no wages due. You can claim the Earned Income Tax Credit annually, which may vary based on the size of the taxpayer's family, income level, and filing status.
For the 2022 tax year, the maximum amount you can get is $6,935. That is if you have three children or more. If you have two children (and meet the other requirements), you can get $6,164. That reduces to $3,733 for one child and $560 if you don’t have any children (or aren’t claiming them as dependents on your tax return).
Who Is Eligible for Earned Income Tax Credit?
Understanding EITC eligibility criteria and qualifications is critical for those seeking to take advantage of the credit; therefore, it's important for anyone interested in pursuing EITC to consult with an experienced tax professional. However, here are the general qualifications:
- To qualify for EITC, you must have earned income of less than $59,187 in the preceding tax year and cannot have more than $10,300 in investment income.
- Additionally, EITC benefits are only available to US citizens or resident aliens who were either (citizen or resident aliens) for the entirety of the year, as well as those who possess a valid Social Security number.
For American citizens living abroad, note that you’re not eligible to claim this tax credit if you’re also filing Foreign Earned Income on Form 2555. You must choose one or the other.
How to Claim EITC
Claiming the Earned Income Tax Credit is actually super easy. To claim the EITC, you’ll need to file a tax return obviously, and depending on your situation, you may also need to include Schedule EIC when claiming a child. You’ll use this form to provide the IRS with information regarding your children. It will ask you for information, such as the following:
- Child’s Name
- Child’s SSN
- Child’s Year of Birth
After that, you’ll check a few boxes and follow the instructions on the second page. It’s that simple!
Can You Claim EITC for Prior Years?
Yes! If you were unaware of your eligibility or unable to claim the Earned Income Tax Credit in any prior years, there is still a chance for you to claim it and receive a refund. You are allowed up to three years from the due date of your tax return for those years to claim and receive the credit.
This means you can claim EITC from 2021 until April 18, 2025, and from 2020 until May 17, 2024. Taking advantage of this opportunity can mean substantial savings on your taxes. So if you think you might be eligible for this credit, don't delay; claim it on your tax return this year.
Delayed Tax Refund
One thing to consider before you go back and look at your previous years’ tax returns is that claiming the Earned Income Tax Credit in past years could delay your tax refund but it's worth considering accessing that money. The delay may depend on a few factors and when the return is received by the IRS. However, seeing as claiming the EITC can provide taxpayers with up to $6,538 in refundable credits, it’s a significant sum of money that is worth going back and trying to claim.
Credit Building Resources
The bottom line is that the Earned Income Tax Credit or EITC is an incredible way to get back the money owed to you throughout the year. It’s a great return on your hard-earned income, and one way you can better manage your finances.
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