By filing your taxes you may be eligible for tax credits that put money back in your pocket. THe Earned Income Tax Credit is a tax credit to support low-to-moderate income families, and is especially generous to filers that have dependents. On average, according to the National Conference of State Legislature, the average EITC filer gets roughly $2,500 back. But, it may surprise you to learn that 20% of eligible workers do not claim this credit. In this article we will share more info about the Federal Earned Income Tax Credit, including what counts as earned income, relevant income limits, and how to make sure you get the credit available to you.
What IS Earned Income
Now, to get the earned income tax credit, you need to have earned income. The IRS defined earned income is all the taxable income and wages you get from working for someone else, yourself or from a business or farm you own.There are 5 main types of earned income.
First, there are Wages, salary or tips where federal income taxes are withheld. Second, there is income from a job where your employer didn’t withhold tax -- think jobs like gig economy work -- uber/lyft/food delivery/selling goods online, etc...The third type of earned income is money made from self-employment including owning or operating e a business or farm. Next, benefits received from a union strike, or certain disability benefits received before the minimum retirement age may count as earned income. Finally, the The sixth type of earned income is nontaxable combat pay
What IS NOT Earned Income
It’s important to also talk about what does not count as earned income. Earned income does not include pay you got for work while you were incarcerated, any Interest and dividends received, pensions, annuities, social security, alimony and child support.
Income Limits For Tax Year 2020
To be eligible for the earned income tax credit, you need to fall below certain income limits. Your ability to claim this credit will depend on three factors: first, the amount of money you make, second, what type of filer you are, and finally the number of dependents you have. Check out income limits by filer type.
It’s important to also note that if you have investments, to claim this credit there is an investment income limit of $3,650 or less.
But What Does All Of This Mean?
Let’s pause here to answer what might be the most obvious next question. If my income qualifies me, how much can I actually claim? Well, we’ve got another chart for you.
You’ll see that this tax credit is much larger for people who qualify with children. If you have no qualifying children you can claim $538. The number continues to increase, with the maximum credit at 6 thousand, 6 hundred 60 dollars with 3 or more qualifying children
How Do I Get the Earned Income Tax Credit?
Alright, now that you know how much you might be able to claim, let’s talk about how to get this credit. To claim the earned income tax credit you must obviously qualify, and then you’ll need to file a federal tax return to claim the credit. If you have a qualifying child you will also need to complete the Schedule EIC to provide information about the qualifying child. The IRS says that if you do make this claim, it can take a bit longer to process your refund.
If you need help filing your taxes, be sure to read our article that recommends a few great free options for filing your taxes. We hope that you now understand whether or not you qualify for this credit. If you have any questions, send us an email at email@example.com.