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 $6,728 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
For example, if your tax liability is only $2,728 and the credit you are allowed is $6,728, you may receive a refund check for $4,000.
What is the maximum income to qualify for earned income credit for tax year 2021? #
|NO. of CHILDREN||MAXIMUM CREDIT||SINGLE||MARRIED|
|3 or more||$6,728||$51,464||$57,414|
How much is the EIC for 2021? #
Single parents with two children under age 19 who made less than $53,865 are eligible for a refundable credit of up to $5,980.
In contrast, couples with no dependent children earning less than $21,920 can receive no more than $543.
“For most of these people it’s the biggest check they are going to get all year,” IRS Commissioner, John Koskinen said in an interview with The Associated Press.
EITC Participation by State #
How many states have an EITC?
Twenty eight (28) states and the District of Columbia, 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 five states — Delaware, Hawaii, Ohio, South Carolina, 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 Rates #
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||Percentage of Federal Credit||Refundable|
|District of Columbia||40%
100% (childless workers)
25% (childless workers)
|Minnesota||25% - 45%|
12% (with child under 3)
|Wisconsin||4% (one child)
11% (two children)
34% (three children)
|New York City *||5%|
New York City is one of only three cities to offer its own EITC as an additional level of support at 5% of the federal EITC. Other cities that offer local EITC are San Francisco, California, and Montgomery County, Maryland.
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.
- IRS. Earned Income and Earned Income Tax Credit (EITC) Tables.