The Earned Income Tax Credit Saved Americans an Average of $2,541 Last Year. Do You Qualify?

We'd all love to pay the government a little bit less at tax time, and fortunately, there are things we can do to reduce our bill. One of the most important is to claim every tax break you qualify for. Tax deductions reduce your tax liability -- how much of your annual income the government taxes -- while credits reduce your tax bill directly.

There are a lot of credits and deductions out there, but there's one in particular that's especially valuable. It saved the average family $2,541 last year. Here's how to know if you can claim it on your 2023 tax return.

What is the Earned Income Tax Credit (EITC)?

The Earned Income Tax Credit (EITC) is a tax credit aimed at low- to middle-income families. It is a refundable tax credit, which means that you can claim it as a refund even if you don't owe any tax. For example, if you qualified for a $1,000 EITC and you didn't owe any taxes last year, you could still claim that $1,000 refund just by sending in your 2023 tax return.

The value of the credit depends on your tax-filing status, income, and the number of qualifying children you have. Here's the maximum EITC for the 2023 tax year:

• No qualifying children: $600
• 1 qualifying child: $3,995
• 2 qualifying children: $6,604
• 3 or more qualifying children: $7,430

However, some people may get less than this if their income is too high. And others won't be eligible for the credit at all.

Who can claim the Earned Income Tax Credit?

To claim the EITC, you must meet the following criteria:

• You and everyone you're claiming on your taxes has a valid Social Security number.
• You're a U.S. citizen or resident alien.
• Your income is less than the thresholds listed in the table below for your number of children and tax-filing status.
• You had investment income of less than $11,000 during 2023.
• You're not filing Form 2555, Foreign Earned Income.

Income is the biggest factor here. The following table shows the maximum adjusted gross income (AGI) you can have in order to claim the EITC based on how many qualifying children you have and your tax-filing status.

For the purpose of the EITC, a qualifying child is one who meets all four of the following requirements:

• Age
  • Is permanently disabled OR
  • Is under 19 at the end of the year and younger than you OR
  • Is under 24 at the end of the year, is a full-time student for at least five months, and is younger than you
• Relationship
  • Is a biological, step-, adopted, or foster child OR
  • Is a full-, half-, or stepsibling OR
  • Is a grandchild, niece, or nephew
• Residency
  • Has lived with you for more than half the tax year
• Joint return
  • Is unable to file a joint tax return with another person

If you're still not sure whether you or your child qualifies, the IRS has an EITC Assistant tool that can help.

How do you claim the Earned Income Tax Credit?

If you're employing a tax professional to help you file your return, they should automatically check to see whether you're eligible for the credit. If you are, they'll fill out the necessary paperwork to get you your credit.

The process is not much different for DIY filers. Most tax software today is programmed to ask you simple questions to determine whether you qualify for the EITC. All you have to do is answer them, and if you're eligible, the software will automatically apply the credit to your return.