# Earned Income Tax Credit (EITC): Definition and How to Qualify

![Business Woman Thinking Account](https://www.investopedia.com/thmb/CBQRVSkKy4hYASvtweWoA_f3lsM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-923217650-7165641175044a9fa56f0af7e6c5282f.jpg)

*—  *

## What Is the Earned Income Tax Credit (EITC)?

The earned income tax credit (EITC) is a tax break available to low- and moderate-income wage earners.

It is a [refundable](https://www.investopedia.com/terms/r/refundablecredit.asp#:~:text=Refundable%20tax%20credits%20are%20refunded,the%20taxpayer's%20lability%20below%20zero.) [tax credit](https://www.investopedia.com/terms/t/taxcredit.asp) that reduces the amount of taxes owed on a dollar-for-dollar basis. Taxpayers are even eligible for refunds of the taxes that have been deducted from their paychecks if their tax credit exceeds their tax liability for the year.

### Key Takeaways

*   The earned income tax credit (EITC) is available only to low- and moderate-income earners.
*   Some eligible taxpayers even receive refunds of money they already paid through payroll deductions.
*   The EITC is a tax credit, not a deduction. That means it reduces taxes owed on a dollar-for-dollar basis.

> **Important**
>
> For the 2025 tax year, the maximum earned income tax credit is $8,048 for a taxpayer who has three or more children. For the 2024 tax year, the maximum credit is $7,830 for a taxpayer who has three or more children.

## Understanding the Earned Income Tax Credit (EITC)

The earned income tax credit (EITC), also called the earned income credit (EIC), was intended as a work bonus plan to increase the real spending power of low-income workers and help offset the effect of Social Security taxes. It continues to be viewed as an anti-poverty tax benefit.

The EITC is available only to taxpayers with [low or moderate earnings](https://www.investopedia.com/financial-edge/0411/5-groups-that-dont-pay-taxes.aspx), whether or not they have qualifying dependents. To claim the credit, an individual taxpayer, or a married couple filing jointly must be at least 19 years old and must live in the United States for more than half of the [tax year](https://www.investopedia.com/terms/t/taxyear.asp). 

The credit percentage, earnings cap, and credit amount vary according to a taxpayer’s filing status and number of dependents. Qualifying dependents can include children under age 19, students under age 24, or family members with a disability.

These factors also determine the income phaseout range over which the credit diminishes to zero. No credit is allowed above the ceiling for the phaseout range.

### How the Credit Works

The credit reduces the amount of tax owed on a dollar-for-dollar basis. If the amount of the EITC is greater than the amount of tax owed by a taxpayer, the taxpayer may be eligible for a refund of taxes already paid by payroll deduction during the year.

The EITC is one of the most important tax credits available to individual taxpayers. The taxpayer must be a U.S. citizen or a resident alien for the entire year and have a valid Social Security number by the tax return’s due date.

The amount of credit that can be claimed on a tax return depends on the taxpayer’s annual earned income for the tax year, [filing status](https://www.investopedia.com/terms/f/filingstatus.asp), and number of qualified dependents.

> **Fast Fact**
>
> If you qualify for the EITC, you may also be eligible for the Child Tax Credit, Child and Dependent Care Credit, or Education Credits.

## Example of the EITC

A refundable tax credit reduces the value of a taxpayer’s liability, dollar for dollar, and results in a refund if the liability is reduced below zero. That makes it more valuable than a tax deduction, which only reduces the filer's total taxable income.

For example, an individual who has a tax bill of $2,900 and can claim a $529 credit will owe $2,371 ($2,900 - $529 = $2,371).

That lower amount is the total that the taxpayer must pay to the [Internal Revenue Service](https://www.investopedia.com/terms/i/irs.asp) (IRS) for the year. If a taxpayer has a total tax liability of $1,000 and a credit of $1,500, then the taxpayer should be entitled to a refund of $500. 

## Qualifying for the EITC

To qualify for the EITC, a taxpayer’s earned income and [adjusted gross income](https://www.investopedia.com/terms/a/agi.asp) (AGI) must be below certain income limits. The limits on the income level, credit amount, and investment income for a single or married taxpayer vary depending on the number of qualifying dependents in the household.

The limits for the 2024 tax year appear below.

The IRS has posted an EITC calculator. The EITC calculator helps determine eligibility for the credit and provides an estimate of the credit amount. To use the calculator, you can input information about your income, qualifying children or relatives, filing status, and relevant financial documents such as W-2s and 1099s. You'll also need to include details about taxes withheld or money received, as well as any relevant expenses or income adjustments. Note that the calculator should be used for estimation purposes only and does not implicitly mean you will get the credit.  

  
\*Taxpayers who claim the EITC under [married filing separately](https://www.investopedia.com/terms/m/mfs.asp) must meet the eligibility requirements under the special rule in the [American Rescue Plan Act (ARPA)](https://www.investopedia.com/american-rescue-plan-definition-5095694) of 2021.  

Taxpayers who are married filing separately can qualify for this credit provided that they meet the eligibility requirements under the ARPA. The tax law provides special EITC rules for clergy and members of the military stationed abroad, and specific rules coordinating the credit with the tax laws applicable in Puerto Rico, Guam, and American Samoa.

## How to Claim the EITC

If you can claim the EITC), be aware that your refund may be delayed as the IRS cannot issue EITC and Additional Child Tax Credit (ACTC) refunds before mid-February. Most EITC and ACTC-related refunds hit taxpayer bank accounts by March 1, assuming there are no other issues with their tax returns.

You can also track your IRS tax refund using the online tool or IRS2Go mobile app.

When filing, ensure you use the correct forms—either Form 1040 or Form 1040 SR—and include the Schedule EIC if you're claiming the EITC with a qualifying child. If you qualify for the EITC in prior years, you have up to three years from the due date of your tax return to file and claim a refund.

Keep in mind that there are specific deadlines for each year. To file for prior years, use Form 1040 and the Schedule EIC if applicable, and if you previously filed a return but didn't claim the EITC when eligible, you can file an amended return.

## What Is the Difference Between a Tax Credit and a Tax Deduction?

A tax credit lowers the amount of tax you owe on a dollar-by-dollar basis. For example, a $1,000 tax credit means that you owe $1,000 less in taxes.

A tax deduction lowers your taxable income. If your taxable income drops by $1,000 and you're in the 24% tax bracket, you'd save $240 in taxes.

## How Much Income Can You Earn in Investments and Still Take the EITC?

For the 2024 tax year, the maximum investment income is $11,600. For the 2025 tax year, the maximum investment income is $11,950.

## How Do You Qualify for the Earned Income Tax Credit?

  

To qualify for the earned income tax credit, the individual must have earned income for the year that is lower than the EITC income threshold for that year. Total investment income must also be below a certain limit.

The taxpayer must be a U.S. citizen or resident alien for the entire tax year and have a Social Security number.  

Members of the military, clergy, and dependents with disabilities have special rules.

## The Bottom Line

The EITC is a federal tax credit designed to provide financial assistance to low-to-moderate-income working individuals and families. It reduces the amount of taxes owed and can result in a refund for eligible taxpayers.

The credit amount depends on income, filing status, and the number of qualifying children.

> **Article Sources**
>
> 1.  Internal Revenue Service. "[IRS releases tax inflation adjustments for tax year 2025](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025)."
>     
> 2.  Internal Revenue Service. "[Who Qualifies for the Earned Income Tax Credit (EITC)](https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/who-qualifies-for-the-earned-income-tax-credit-eitc#basic)."
>     
> 3.  Internal Revenue Service. “[Publication 596: Earned Income Credit (EIC)](https://www.irs.gov/pub/irs-pdf/p596.pdf).”
>     
> 4.  Internal Revenue Service. "[Earned Income Tax Credit (EITC).](https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc)"
>     
> 5.  Internal Revenue Service. "[Rev Proc 2023-34](https://www.irs.gov/pub/irs-drop/rp-23-34.pdf)," Page 9.
>     
> 6.  Internal Revenue Service. "[Use the EITC Assistant](https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant)."
>     
> 7.  U.S. Congress. “[H.R.1319 — American Rescue Plan Act of 2021](https://www.congress.gov/bill/117th-congress/house-bill/1319/text).”
>     
> 8.  Internal Revenue Service. "[How to Claim the Earned Income Tax Credit (EITC)](https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/how-to-claim-the-earned-income-tax-credit-eitc)."