The Earned Income Tax Credit (EITC or EIC) is a benefit for working people with low to moderate income, and it is the federal government’s largest benefit for workers. For people who have earned income from working for someone or running a business or farm, it’s money that positively impacts change in their life, family and community. Nationwide during 2019, 25 million eligible workers and families received about $61 billion in EITC.

EITC is a refundable tax credit, which means that it can be subtracted from taxes owed, but can also be refunded to the taxpayer even if taxes are not owed. Ever since it was first enacted in 1975, its popularity and impact has led to bi-partisan political support and expansion a number of times.

It is also worth mentioning that twenty-nine states plus the District of Columbia and Puerto Rico have enacted their own version of the federal Earned Income Tax Credit to help working families earning low wages meet basic needs.

The EITC can be worth as much as $6,557 for 2019 tax year and $6,660 for 2020. However, the credit amount varies significantly depending on tax filing status, number of qualifying children, and income earned. It is phased in and then phased out at certain income thresholds.

To take this credit, you must follow the steps outlined in the Instructions for Form 1040, Line 17a, complete the worksheet that applies to you or let the IRS figure the credit for you. If you have a qualifying child, you have to complete and attach Schedule EIC. Basically, Schedule EIC is used to give the IRS information about your qualifying child (children) after you check that you qualify to take the credit and have a qualifying child.

Families with children receive a much larger credit than workers without qualifying children; childless workers can receive a maximum credit of only $529. Moreover, the credit for childless workers phases out at much lower incomes, and childless workers must be at least 25 and not older than 64 to qualify for a subsidy (restrictions that do not apply to workers with children).

Each child you claim must pass the relationship, age, residency, and joint return tests to be your qualifying child. You may also be able to take the additional child tax credit if your child was your dependent and under age 17 at the end of 2019.

If you do not have a qualifying child and you and your spouse (if filing a joint return) meet the basic EITC rules for everyone, you qualify for EITC if:

• You resided in the United States for more than half of the year; AND
  
  
• You cannot be claimed as a dependent or qualifying child on anyone else's return; AND
  
  
• You must have been at least 25 but under 65 years old at the end of the tax year.

The EITC maximum credit amounts for 2019 are:

You can use the EITC Assistant on the IRS website to find out your filing status, if your child is a qualifying child, if you are eligible, and to estimate the amount of the credit you may get.

Special EITC rules apply for members of the military, ministers, members of the clergy, those receiving disability benefits and those impacted by disasters.

Members of the military on extended active duty outside the Unites States are considered to live in the United States for tax purposes.

You do not have to report your nontaxable pay you receive as a member of the Armed Forces as earned income for EITC. Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). The amount of your nontaxable combat pay is on your Form W-2, in box 12, with code Q.

Nonetheless, you and your spouse can each choose to have your nontaxable combat pay included in your earned income for EITC. Including it as earned income may decrease the amount of tax you owe and may mean a larger refund. Calculate your taxes with the combat pay as earned income and without to find out what's best for you.

Some disability retirement benefits qualify as earned income to claim EITC. Also, you may claim a relative of any age who is totally and permanently disabled and fits all other eligibility requirements.

If you take the EITC even though you are not eligible and it is determined that your error is due to reckless or intentional disregard of the EIC rules, you will not be allowed to take the credit for 2 years even if you are otherwise eligible to do so.

If you fraudulently take the EIC, you will not be allowed to take the credit for10 years. You may also have to pay penalties.

To get this credit, first of all you need to file your federal taxes. That's true even if you earn less than the 2019 standard deduction of $12,200 for single filers, $18,350 for heads of household, and $24,400 for married filing jointly and surviving spouse.

You should keep in mind that, if you qualify for the EITC, you likely also qualify to file your taxes for free through the Free File Alliance, so there's no reason not to file, especially if it can net you a refund.

The Free File Alliance is a nonprofit coalition of industry-leading tax software companies partnered with the IRS to help you prepare and e-file your federal tax return for free. The IRS stipulates that filers must have an adjusted gross income of $69,000 or less for tax year 2019, but participating companies have their own requirements and restrictions. The maximum income changes every year.

There are form options available to those who have earned over $69,000, but these forms are essentially an electronic version of existing paper forms.

If you are not comfortable with taxes or don’t understand your financial situation fully enough to use these forms, it is worth investing a small amount in getting help from a tax professional to make sure you take advantage of all the credits you may be entitled to.