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What Is the Earned Income Tax Credit?

The Earned Income Tax Credit (EITC) is a refundable tax credit for low to moderate income families that helps those families offset the burden of Social Security taxes and provides them with an additional incentive to work.  Families that qualify for the EITC can reduce the amount of taxes they owe and, since the credit is refundable, even receive money back from the federal government if the amount of the credit exceeds the amount of taxes owed.

 Who Qualifies for the Credit?

The credit applies to taxpayers with earned income below a certain amount.  Earned income is defined by the Internal Revenue Service as money that a taxpayer gets from working, whether for themselves or for someone else.  This definition excludes income from investments or social entitlement programs.  In fact, too much investment income will disqualify a person from receiving the EITC.  For 2012, the limit on investment income is $3,200 for the year. 

Income Limits

There are also limits on the amount of earned income a taxpayer can have.  The number varies according to the number of qualifying children a person or couple has.  There are several rules for what constitutes a “qualifying child,” so be sure to read the IRS’ “Qualifying Child Rules” for more information. 

The 2012 income limits for the EITC are:

  • $45,060 ($50,270 married filing jointly) with three or more qualifying children
  • $41,952 ($47,162 married filing jointly) with two qualifying children
  • $36,920 ($42,130 married filing jointly) with one qualifying child
  • $13,980 ($19,190 married filing jointly) with no qualifying children

The maximum credit amounts for 2012 are:

  • $5,891 with three or more qualifying children
  • $5,236 with two qualifying children
  • $3,169 with one qualifying child
  • $475 with no qualifying children
Next Steps
Contact a qualified tax attorney to help you navigate
your federal and/or state tax issues.
(e.g., Chicago, IL or 60611)

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