Q: What Is the Earned Income Tax Credit?

The Earned Income Tax Credit (EITC) is a federal benefit for low- to moderate-income working individuals that takes the form of a refundable tax credit. If you qualify, it reduces the amount of tax you owe to the IRS, dollar-for-dollar. If the amount you owe is less than the amount of the credit, you will receive a refund.

 If you, like many other Americans, have been impacted financially by the COVID-19 crisis, this credit can help ease the financial burden should you qualify and claim it for the 2019 tax year. 

Get the support you need with our HR Services.

How do I check if I qualify?

Check out the IRS’s EITC Assistant tool to see if you’re eligible. Qualification is based on where you stand on each of the four factors below:

  • Adjusted gross income (AGI): This is the money you earned through wages, tips, and any other source of income, minus either the standard deduction or your itemized deductions. 
  • Investment income: In other words, how much you made from interest payments, dividends, capital gains, or other profit made through an investment vehicle.
  • Filing status: You can file as single, married filing jointly, married filing separately, head of household, or qualifying widow.
  • Number of qualifying children: More on how children qualify below.

For detailed information about filing for the EITC, and for the most up-to-date information, see Publication 596.

What is the qualifying criteria for each factor?

Qualifying children 

In order for a child to qualify for EITC purposes, they must pass four tests:

  • Relationship: The child must be your biological child, adopted child, step child, foster child, or a descendent of any of them (such as a grandchild). They may also be your biological sibling, your half sibling, step sibling, or a descendent of any of them (such as a niece or nephew).
  • Age: At the end of the filing year, your child qualifies if they were: 
    • younger than you or your spouse, and younger than 19
    • younger than you or your spouse, younger than 24, and a full-time student
    • any age and have a permanent disability*
  • Residency: The child must have the same main home as you or your spouse, in the United States, for more than half of the tax year.
  • Joint Return: The child cannot file a joint return for the year, unless they filed the return only to claim a refund and were not required to file.

How can Gusto and policymakers support your business during COVID-19?

Adjusted gross income and filing status

Depending on how many qualifying children (QC) you have and what your filing status is, you cannot claim the credit if your AGI is above a certain amount. For the 2019 tax year, those cap AGI amounts are:

Filing statusZero QC*One QCTwo QCThree or more QC
Single, Head of Household, or Widowed$15,570$41,094$46,703$50,162
Married Filing Jointly$21,370$46,884$52,493$55,952

*QC = qualifying children

You cannot claim the EITC if you file as “married filing separately,” or if your AGI is over $55,952.

Maximum Investment Income

You must have less than $3,601 of investment income for the year.

How much is the credit worth?

Depending on how many qualifying children you claim on your return, the maximum amount of the credit for tax year 2019 is:

  • $6,557 with three or more qualifying children
  • $5,828 with two qualifying children
  • $3,526 with one qualifying child
  • $529 with no qualifying children

How do I claim the credit?

To claim the credit, you must file a tax return, even if you are not required to file or owe no tax. Here’s a list of what forms and info you should have ready:

  • Social Security cards, a Social Security number verification letter, or other US government document verification for everyone on your return
  • Birth dates for everyone on your return
  • Copies of last year’s federal and state returns, if you have them
  • All your income statements, including Forms W-2 and 1099, Social Security, unemployment, and any other statements that record your income
  • All records of your expenses, including tuition, mortgage interest, real estate taxes, or business expenses
  • All information reporting forms, like the 1095-A, 1095-B, or 1095-C
  • Your bank routing numbers and account numbers, so you can direct deposit any refund
  • Dependent child care information, like the name and address of paid caretakers and either their Social Security number or other tax identification number

If you are eligible for the EITC, you will also be eligible to participate in the IRS Free File program to e-file your federal return for free. For more information on the Free File program, visit the IRS’ Free File information page.

Could I still be eligible for Free File, even if I don’t qualify for the EITC?

Yes. If your 2019 AGI was $69,000 or less, you will be eligible for free federal tax filing. Go to the Free File lookup page to learn more about how to file for free.

Our COVID-19 Small Business Resource Hub has legislation updates, advice, and support.

Comments

  • Richard Hermann

    If I typically earn/receive alot of annual commissions from sales, but that has been wiped out due to Covid and the economy , but i get a base salary….is there any federal relief for that. So- if I normally earn $20k in the first half of the year but only made $5k in commissions – is that something that can be addressed by Govt help?

    Reply
    • Gusto Editors

      Hi Richard — we hear you. We have a complete directory of relief sources, both federal, state, and industry-wide, which you can check out here to see if there are any specific to commission-based workers: https://gusto.com/covid-19/small-business-financial-relief If you are self-employed, you may also be able to apply for a PPP loan.

      Reply
  • Valeria Garcia

    Where do I sign up for the tax credit

    Reply
    • Gusto Editors

      Hi Valeria, if you are eligible for the EITC, you will also be eligible to participate in the IRS Free File program to e-file your federal return for free. For more information on the Free File program, visit the IRS’ Free File information page: https://apps.irs.gov/app/freeFile/

      Reply
  • Lisse Dolinger

    What if you have already filed taxes, can you still qualify?

    Reply
  • Michelle "Mitch" Riker

    is there a reduction of fees for having to use your 401k

    Reply
    • Gusto Editors

      Hi Michelle — there may be tax implications if you withdraw from your 401(k) early. After the distribution, you may either repay the withdrawal within three years (if you are still part of the plan and the plan allows you to do so) or, if you are not able to repay the distribution, you will have three years to pay the income tax on the distributed amount. Keep in mind that although the CARES Act removes the 10% penalty of early withdrawal, taking money out of retirement accounts early has an opportunity cost. For more specific guidance, we recommend you consult a lawyer or HR expert for specific guidance.

      Reply

*Required fields

Your email address will not be published.

Back to top