Who, Why, and How Much? The Earned Income Tax Credit

Income Tax Credit

The Earned Income Tax Credit (EITC) is not one of the tax code’s best-understood provisions, but it is one that can be of benefit to a large portion of the American populace. According to the Center on Budget and Policy Priorities, a nonpartisan research and policy institute that pursues federal and state policies designed to reduce poverty and inequality, the EITC is “a federal tax credit for low- and moderate-income working people. It encourages and rewards work as well as offsets federal payroll and income taxes.”

Who qualifies for the EITC, and for what amount?

The amount of the federal credit for which taxpayers qualify is contingent upon several factors. When filing a tax return for 2022, working families with children, whose annual incomes fall between $43,492 to $59,187 (depending on marital status and number of children), are generally eligible for the federal EITC. Those taxpayers categorized as working poor (single taxpayers without dependents who earn less than $16,480, or $22,610 for a married couple), are also eligible to receive a small credit.

The EITC essentially applies to workers from the first dollar they earn in the tax year for which they are filing. The credit increases as income rises until it reaches the designated thresholds (detailed above), at which point it gradually phases out. In other words, the more income a taxpayer generates, the less likely they are to need—and therefore to qualify for it.

According to the Internal Revenue Service (IRS), nationwide during 2021, 25 million eligible workers and families received about $60 billion in EITC. The average amount of EITC received nationwide was about $2,411, which translates to a monthly wage increase of over $200. Because those taxpayers who are eligible typically have little to no discretionary income, research indicates that families typically use the credit to pay for basic necessities, pursue home or vehicle repairs, or to seek job or skills training.

Rewarding Work & Helping to Prevent Poverty

The EITC is designed to incentivize work, to act as a deterrent to individuals becoming non-working recipients of social welfare programs. It increases incrementally up to a certain income threshold and is designed to support social welfare recipients in making the transition to full-time wage-earners, and to encourage part-time workers to increase their working hours. Most taxpayers who work full-time and earn no more than the federal minimum wage need both the EITC and SNAP (food stamp) benefits to surpass the poverty line.

In addition to the federal credit, 31 different states and the District of Columbia, have now established state earned income tax credits for taxpayers who qualify.

E-file.com can help to determine if you’re eligible for the EITC, as well as determine the amount for which you qualify. Our intuitive filing system tries to take the stress and guesswork out of completing your tax return. If you find yourself with any questions or concerns along the way our free tax assistance is available on throughout the filing process.