When to Use Schedule EIC: Earned Income Credit
The earned income tax credit, or EIC, is available to taxpayers with low to moderate income. It was created in 1975 to help offset the heavy burden of Social Security taxes and act as an incentive for low-income taxpayers to continue working.
Key Takeaways
- To claim the Earned Income Credit, you need a valid Social Security number, must be a U.S. citizen or a full-year resident alien, and have earned income within the EIC limits.
- If you have one or more qualifying children, you need to use Schedule EIC to claim the EIC. To qualify, your child must meet specific residency, age, joint return, and relationship tests.
- Your EIC amount depends on your filing status and the number of qualifying children, with a maximum credit available for three children or more.
- You cannot claim the credit if you have more than $11,600 of investment income in 2024.
About the EIC
The EIC is a refundable tax credit, which means that it can be used to reduce your taxable income below zero and generate a tax refund. The maximum amount of EIC allowed and income limitations associated with claiming it are adjusted each year by the IRS based on the cost of living. You must meet certain requirements in order to claim the credit. If you have a qualifying child or children, you claim the EIC by filing Schedule EIC with your tax return.
Determining eligibility
You must meet the following requirements in order to be eligible for the EIC:
- have a valid Social Security number
- be a U.S. citizen or a full-year resident alien
- have earned income (wages, salaries, self-employment income, etc.) and meet the EIC income limits
You cannot claim the credit if you are married and filing a separate return, file Form 2555 or 2555-EZ, have more than $11,600 of investment income in 2024. This threshold increased from $11,000 for 2023. You also cannot be the qualifying child of another person.
For most years, you can claim the EIC without having a qualifying child and filing Schedule EIC if you are not claimed as a dependent on another person's return, you live in the U.S. for more than half the year and are at least age 25 and under 65 at the end of the year. However, for 2021, you can claim the credit as a single person as young as age 19 and there is not any upper age limit. Also for 2021, a specified student can claim the credit starting at age 24 and qualifying former foster youths and qualified homeless youths can claim the credit at age 18.
TurboTax Tip:
The EIC is a refundable tax credit, which means it can reduce the tax you owe below zero and result in a tax refund.
Qualifying children
You use Schedule EIC to claim the EIC with one or more qualifying children (maximum of three). To qualify, a child must meet the tests for residency, age, joint returns and relationship. These include:
- have lived with you for more than half the year
- be under age 19 at the end of the tax year—or 24 if a full-time student—and not have filed a joint return
- be your son, daughter, brother, sister, stepbrother, stepsister or a foster child legally placed under your custody.
Only one person can claim a qualifying child. If a child can be the qualifying child for more than one person, the IRS has a tie breaker to determine who claims the child.
Calculating the credit
There are two ways to calculate the amount of your EIC. First, you can calculate the credit yourself using the earned income credit worksheet and earned income credit table found in the 1040 Instruction Booklet. When filing Schedule EIC and claiming the credit with a qualifying child or children, it is very important that you find your credit amount in the appropriate column for your filing status and number of qualifying children on the earned income credit table. Second, you can choose to have the IRS figure your credit amount for you if you do not wish to calculate the credit yourself. You can do this by entering "EIC" on line 64a of Form 1040.
The amount of EIC you qualify for depends upon your filing status and increases with the number of qualifying children (up to three), is available with earned income of up to $66,819 with a maximum credit of $7,830 for up to three children in 2024. For 2023, the income limit is $63,398 and can result in a credit of up to $7,430 for three children.
The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020, as a stimulus measure to provide relief to those affected by the pandemic. For tax year 2020, The CAA allows taxpayers to use their 2019 earned income if it was higher than their 2020 earned income in calculating the Additional Child Tax Credit (ACTC) as well as the Earned Income Credit (EIC). For 2021, you can use whichever year's earned income, 2019 or 2021, that gives you the highest credit.
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