If you’re looking for an easy way to lower your federal income taxes—and perhaps get a tax refund check for thousands of dollars—one sure-fire tax move is to claim the Earned Income Tax Credit. The Earned Income Tax Credit, alternately called the EITC or the EIC, is a refundable tax credit provided to low-to-moderate income individuals and couples who work and who meet certain other criteria.
In 2013, the average taxpayer who claimed the Earned Income Credit got a tax credit of $2,355.
Here’s how you can get your credit and tax refund with the help of the EIC in 2014.
The Definition of “Earned” Income
The first criteria to qualify for the EITC is that you must have had “earned” income—meaning you had a job and you received employee pay (like salary or tips), or you owned a business or farm and you received self-employment income.
Taxable income you may have received from union strike benefits and from certain disability payments can also qualify you as having “earned” income in order to receive the EITC.
But you’re out of luck (sorry!) and you do not qualify for the Earned Income Credit if your only form of income is from one or more of the following sources:
- Alimony
- Child support
- Dividends
- Inmate pay (i.e. money for work while imprisoned)
- Interest
- Retirement income
- Social security
- Unemployment benefits
Even if you personally do not qualify for the EITC, if you have a spouse with “earned” income, and you file a joint tax return, it is possible that your spouse could qualify for the EITC—so ultimately your family would still get this valuable tax credit.
Be aware, though, that if you are married filing a separate tax return, then neither one of you qualify for the Earned Income Credit according to IRS guidelines.
2013 Income Requirements for the EITC
The next most important thing to know about the EITC is that your income must fall below a certain level in order to get this lucrative tax credit. The income guidelines (i.e., income caps) are updated annually.
To claim the Earned Income Credit for the 2013 tax year, your adjusted gross income (AGI) must have been less than:
- $46,227 ($51,567 married filing jointly) if you have three or more qualifying children
- $43,038 ($48,378 married filing jointly) with two qualifying children
- $37,870 ($43,210 married filing jointly) with one qualifying child
- $14,340 ($19,680 married filing jointly) with no qualifying children
So now let’s get to the good part. How big a tax credit (and possible tax refund) can you receive?
According to IRS Publication 596, here is the maximum Earned Income Tax Credit you can get for the 2013 tax year, based on how many children you have:
- $6,044 with three or more qualifying children
- $5,372 with two qualifying children
- $3,250 with one qualifying child
- $487 with no qualifying children
As you can see, the Earned Income Credit can put thousands of dollars back into your pocket if you have children. But even those without kids can still get nearly 500 bucks from this credit.
And if you’re doing a little family planning and expect to have a child in 2014, by the time 2015 rolls around, you’ll be able to get an even bigger tax credit. That’s because just like the income guidelines get adjusted upward every year, so does the annual maximum credit you can claim for the EITC. So next year, your refund potential with the EIC is even greater.
Other Criteria to Qualify for the EITC
IRS guidelines include a few other criteria for qualifying for the EITC: one of them is that your investment income, if any, for 2013 must be $3,300 or less for the year. For most people who are earning roughly $50,000 or less, this will not be a problem. But it’s an important stipulation to know nonetheless.
To claim the Earned Income Tax Credit, you must file a tax return—even if you don’t owe money or even if you aren’t required to file. You or your tax preparer need to fill out Schedule EIC, the Earned Income Credit Qualifying Child Information Form, and submit that Schedule EIC along with your 1040. (If you’re filing a 1040A, you can just use an EIC worksheet and keep it.)
Also, remember that you don’t have to have a child to claim the EIC. But the largest refund checks for the EIC are provided to those with children.
Lynnette Khalfani-Cox is a personal finance expert and co-founder of the free financial advice site, AskTheMoneyCoach.com. Follow Lynnette on Twitter @themoneycoach and Google Plus.
