The 2017 Earned Income Tax Credit

A Refund for Low-Income Workers

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The federal government created the earned income tax credit (EITC) to help low-income and some middle-income families and individuals keep more of their money. It's a refundable credit, so if there's any left over after it erases your tax debt, the IRS will give you a refund for the difference. The amount of the credit depends on your income and how many dependents you have. 

Earned Income Tax Credit Amounts for the 2017 Year

The maximum tax credits for the return you'll file in 2018 for the 2017 tax year are:

  • $6,318 if you have three or more qualifying children
  • $5,616 if you have two qualifying children
  • $3,400 if you have one qualifying child
  • $510 if you have no qualifying children

Income Limitations

You must have earned income to qualify for the credit, but you can't have too much. Earned income means wages and earnings from employment and net profits from self-employment. Wages and salaries are reported on Form W-2. Self-employment income is generally reported on Form 1099-MISC.

Both your earned income and your adjusted gross income (AGI) must be less than a certain amount to qualify for the earned income tax credit. Your AGI is your earned income minus certain adjustments for income that you don't have to pay taxes on, such as IRA contributions. It appears on line 37 of Form 1040, on line 21 if you file Form 1040A, and on line 4 of Form 1040EZ. 

In 2017, your earned income and AGI must be less than:

  • $48,340 (or $53,930 if you're married and filing jointly) if you have three or more qualifying children
  • $45,007 (or $50,597 if you're married filing jointly) if you have two qualifying children
  • $39,617 (or $45,207 if you're married filing jointly) if you have one qualifying child
  • $15,010 (or $20,600 if you're married filing jointly) if you have no qualifying children

Investment Income Limitations

If you have any investment income, it can't exceed $3,450. Investment income includes interest, dividends, capital gains, and royalties. It might be reported on a 1099-MISC or, for dividends, on Form 1099-DIV. The institutions where you hold investments should send you copies of these forms shortly after the first of the year.

Who Is a Qualifying Child for the EITC?

The rules for qualifying children for the EITC are slightly different than those for dependents. You might be able to claim a child as your dependent but not for the EITC, or you might qualify for the EITC even though the noncustodial parent claims your child as a dependent. The rules for qualifying children for EITC purposes are based on four tests: 

  • Relationship test: The child must be related to you by birth, marriage, adoption, or foster arrangement. The child can be your son, daughter, stepchild, grandchild, niece, nephew, brother, sister, or an eligible foster child. Adopted children are treated the same as children by birth. Foster children must be placed in your care by an authorized placement agency.
  • Age test: The child must be age 18 or younger at the end of the tax year, or age 24 or younger and a full-time student for at least five months of the year. If your dependent is totally and permanently disabled, you can claim the person for the EITC regardless of his age. In any case you—or your spouse if you're married and filing a joint return—must be older than your dependent. 
  • Residency test: The child must live with you in the U.S. for more than half the year—at least six months and one day. 
  • Joint return test: The child you claim as a dependent for the earned income tax credit cannot file a joint return with his or her spouse. One exception is if your dependent files a joint return solely to claim a refund and they don't claim any deductions or tax credits on their own return.

The child must also have a valid Social Security number. If your child needs one, complete Form SS-5 and submit it to the Social Security Administration. You'll need to provide two documents that prove your child's age, citizenship status, and identity, and you'll need ID proving your own identity as well. If your request is approved, you should receive a Social Security card for the child within a couple of weeks.

If the tax deadline is looming and you can't wait that long to file your return, consider filing with the IRS for an extension of time. If you're eligible for the EITC, you won't want to file without claiming it because it's a valuable tax credit that can make a big difference in what you owe the IRS or in the amount that you'll be refunded. 

You must attach  to your Form 1040 to claim a qualifying child or children. 

EIC Requirements for Taxpayers

Taxpayers must also meet a few rules to be eligible to claim the EITC: 

  • You must have a valid Social Security number.
  • You must be a U.S. citizen or a resident alien for the entire year.
  • You—and your spouse if you're married—can't be claimed as a qualifying child by someone else.
  • You can't claim the foreign earned income exclusion, which relates to wages earned while living abroad. 
  • You and your spouse if you file jointly must be between the ages of 25 and 64.

Finally, you can't claim the EITC if your filing status is married filing separately, but if you and your spouse are separated and your spouse did not live with you at any time during the last six months of the year, you might be able to file as head of household. This status would allow you to claim the earned income tax credit.

The EITC and the PATH ACT 

You might have to wait a little while for your EITC refund, even if a portion of your expected refund is for taxes you overpaid during the year. The Protecting Americans from Tax Hikes (PATH) Act requires that the IRS must hold refunds that claim this credit until at least February 15. This allows the government some time to investigate the possibility of fraudulent claims. As a practical matter, the IRS has indicated that it doesn't anticipate beginning to process these refunds until February 27, 2018.

 

A delayed refund doesn't mean the IRS suspects you of fraud. The rule applies to all tax returns claiming the EITC.