The Earned Income Tax Credit (EITC) is a tax benefit for individuals and families who earn low-to moderate incomes — mainly targeted at families with children.
It is a tax credit that may reduce the amount of taxes you owe, or provide you with a refund when the credit is larger than the tax amount owed.
The current EITC is worth up to $7,430 in refundable cash based on income level, family size and marital status. Those with the lowest incomes qualify for the largest credits. The credit phases out as you earn more money. 1
Federal EITC #
What is the maximum income to qualify for EITC for tax year 2023? #
Depending on your filing status and number of qualifying children, you might be eligible for the credit on your 2023 federal tax return if your income is under $63,698.
| NO. OF CHILD | MAXIMUM CREDIT | SINGLE | MARRIED |
|---|---|---|---|
| None | $600 | $17,640 | $24,210 |
| 1 | $3,995 | $46,560 | $53,120 |
| 2 | $6,604 | $52,918 | $59,478 |
| 3 or more | $7,430 | $56,838 | $63,698 |
How much is the EIC for 2023? #
For the 2023 tax year, the earned income credit ranges from $600 to $7,430, depending on your filing status and how many children you have.
Single parents with two children under age 19 who made less than $52,918 are eligible for a refundable credit of up to $6,604. In contrast, couples with no dependent children earning less than $24,210 can receive no more than $600.
State Earned Income Tax Credits (EITC) #
Which states have local earned income tax? #
Thirty one (31) states, the District of Columbia and Puerto Rico, as well as New York City, offer their own version of Earned Income Tax Credits (EITCs) to complement the federal credits — applying a percentage match to the federal allocation.
South Carolina and Montana become the 27th and 28th states to enact the state-level EITC, respectively. Hawaii would soon enact a state-level EITC equal to 20% of the federal credit. Missouri and Washington both passed legislation in 2021 enacting a state EITC that takes effect in 2023.
In all but six (6) states — Hawaii, Missouri, Ohio, South Carolina, Utah and Virginia — state EITCs, like the federal credit, are refundable.
That is, if a refundable credit exceeds a taxpayer’s state income tax, the taxpayer receives the excess amount as a payment from the state, creating an incentive to work and allowing them to keep more of what they earn.
A nonrefundable EITC can only offset state income taxes, so the benefit is limited for low-income families with little taxable income.
State EITC as Percentage of the Federal EITC #
Nearly all state EITCs are modeled directly on the federal EITC — each uses federal EITC eligibility rules, however, the percentages vary greatly from state to state.
All but one state set their credits as a percentage of the federal EITC, the exception being Minnesota which calculates its credit as a percentage of income.
| STATE | % of Federal Credit | Refundable |
|---|---|---|
| California | 45% | |
| Colorado | 25% | |
| Connecticut | 30.5% | |
| Delaware | 4.5% 20% (non-refundable) |
|
| District of Columbia | 70% 100% (childless workers) |
|
| Hawaii | 20% | |
| Illinois | 20% | |
| Indiana | 10% | |
| Iowa | 15% | |
| Kansas | 17% | |
| Louisiana | 5% | |
| Maine | 25% 50% (childless workers) |
|
| Maryland | 28%
50% (non-refundable) |
|
| Massachusetts | 30% | |
| Michigan | 30% | |
| Minnesota | 25% - 45% | |
| Missouri | 10% | |
| Montana | 3% | |
| Nebraska | 10% | |
| New Jersey | 40% | |
| New Mexico | 25% | |
| New York | 30% | |
| Ohio | 30% | |
| Oklahoma | 5% | |
| Oregon | 9% 12% (with child under 3) |
|
| Rhode Island | 15% | |
| South Carolina | 125% | |
| Utah | 15% | |
| Vermont | 38% | |
| Virginia | 15% | |
| Wisconsin | 4% (one child) 11% (two children) 34% (three children) |
|
| New York City | 10% - 30% |
New York City is one of only three cities to offer its own EITC as an additional level of support. Other cities that offer local EITC are San Francisco, California, and Montgomery County, Maryland.
In 2021, Washington became the first state without a personal income tax to enact a state EITC. Once the credit takes effect in 2023, the Washington State Working Families Tax Credit (WFTC) will offer a flat credit to low-income households, ranging from $300 to $900.
America’s Most Effective Anti-Poverty Program #
The EITC is widely recognized as an effective tool for preventing low-income working families from slipping into poverty. The credit is very successful at reducing poverty, benefiting recipient parents and children, and promoting work rather than welfare.
The “refundable” portion of the EITCs provides a much needed income boost that helps meet their basic needs and pay for the very things that allow them to keep working, such as child care and transportation.
In 2018, it lifted 5.6 million people, including about 3 million children. In fact, the EITC has become the largest anti-poverty program in the nation.
It is, however, important to note that the EITC is used mostly as a temporary support to help families meet their basic needs while they work toward becoming self-sufficient.
The EITC and the PATH ACT #
The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) mandates that the IRS not issue a refund on tax returns claiming the Earned Income Tax Credit or Additional Child Tax Credit until Feb. 15.
The additional time allows the IRS to investigate the possibility of fraudulent claims with fabricated wages and withholdings. Thus, you’ll have to wait a little while for your EITC refund.
References
- IRS. Earned Income and Earned Income Tax Credit (EITC) Tables.