The Earned Income Tax Credit benefits low-and-moderate-income working people. The catch is, you have to file a tax return, even if you don’t owe any taxes or are not required to file. In return for doing the paperwork, you may get a tax refund, so it’s worth it to take the trouble to file your taxes.
Best Earned Income Tax Bracket
So you want to know how to make the most of the Earned Income Tax Credit, or EITC. First of all, make sure you fill out a tax return. You, your spouse and any dependent children must all have Social Security numbers issued before the due date of your return, including extensions. Also, you cannot file as married filing separately. Married couples must file jointly, or you must file as head of household, qualifying widow or widower, or single. Noncitizens must meet rules set out in Publication 519 to see if they qualify for EITC.
You must work, either as an employee or business owner, and investment income is limited to $3,500 for the year. According to the IRS tax tables, if you qualify for the EITC, you will be in the 15-percent tax bracket. For you to be eligible for EITC with no children, your income must be no more than $20,950 for married couples filing jointly and $15,270 for singles with no children. You get the best earned income tax bracket if you have three or more qualifying children. For singles with three children, you can earn up to $49,194. For married couples with three children, the income ceiling is $54,884. For you to qualify for the highest EIC or earned income credit, your income must not exceed $24,000, and you must have three or more qualifying children. There's a free online EIC calculator which allows you to enter your income and other details and calculate what your EITC total will be. For the latest IRS rules on EITC, you can go here.
Two children bring the income limits for EITC down to $45,802 for singles, and $51,492 for married couples. The EITC limit for singles with one child is $40,320, while for married couples, it’s 46,010. Earned income includes all taxable pay, similar to your adjusted gross income.
Exceptions to Earned Income
While you may think all your earned income counts toward your income limits, that’s not necessarily the case. Unemployment benefits, retirement income, Social Security income, alimony or child support do not count toward your income total when it comes to the EITC. Also, if you earned combat pay, that may give you an advantage. Including your combat pay as earned income may lower the amount of tax that you’ll owe, and you may get a larger refund. The IRS recommends calculating your tax both ways to see which gives you the largest refund. You do need to live in the U.S. for at least half the year to qualify for EITC, but service members on active duty outside the U.S. are considered as living in the U.S., so they meet this requirement.
Changes for 2018
The maximum EITC for 2018 is $6,444 for taxpayers filing jointly with three or more qualifying children. It’s $5,716 for married filers with two kids and $3,461 for married taxpayers with one kid. It’s $519 with no qualifying children. The Tax Cuts and Jobs Act said EITC figures starting with 2018 taxes will be decided based on the Chained Consumer Price Index for All Urban Consumers.
Your 2017 Taxes
If you’re doing your 2017 taxes, the EITC limits are just a little lower. For filers with no children, credits can range from $2 to $510. For taxpayers with one child, credits range from $9 to $3,400. For those with two kids, credits range from $10 to $5,616. For those with three or more kids, credits range from $11 to $6,318. The maximum income limit to qualify for EITC for married couples with three or more kids is $53,990, or $48,340. For married couples with two kids, the income limit is $50,597, or $45,007 for singles with two kids. For married couples with one child, the income limit is $45,207, and it’s $39,617 for a single head of household with one child. For those without kids, the income limit is $15,010 for singles and $20,600 for married couples.
- Internal Revenue Service: EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
- Forbes: IRS Announces 2018 Tax Brackets, Standard Deduction Amounts and More
- Internal Revenue Service: Qualifying for the Earned Income Tax Credit
- 1040.com Tax Credit: Combat Pay and the Earned Income Tax Credit
Karen Gardner is a former feature editor and writer and is now a freelance writer. She looks forward to doing her family's taxes each year, and likes to write about home finances and money subjects for the rest of us.