What is the earned income credit?


Quick Answer

The earned income credit, also known as the EIC, earned income tax credit or EITC, is a tax credit for low-income filers who also have earned income. Filers who do not meet the income guidelines or who do meet the guidelines but only have unearned income are not eligible to take the credit. There is also an investment income limit, even if the filer's total income meets the guidelines.

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Full Answer

The EITC is refundable, so if a filer owes less taxes than the credit is worth, he gets a refund. The exact amounts of the income limits and the EITC payout vary by tax year, but the credit generally starts low, rises to the maximum and then lowers again before it phases out completely. The number of children a filer can claim also factors into this credit. A filer with one child phases out of the credit before a filer with two children. From 2009 to 2017, the maximum number of children that a filer can claim for the credit increased from two to three. Filing status also plays a role in the amount of refund a filer receives, so a single filer phases out of the credit before someone who is married filing jointly.

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