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How the Earned Income Tax Credit Works

By: Dave Roos  | 

Income Limits for the Earned Income Tax Credit

As its name indicates, the Earned Income Tax Credit (EITC) is largely based on the amount of income you earn in a tax year. Earned income, as defined by the IRS, includes all wages, salary and tips from a job, self-employment or your own business. Earned income also includes other taxable forms of income, like Social Security benefits, unemployment benefits, union strike benefits and long-term disability benefits if you are under age 65. Earned income does not include non-taxable income like alimony, child support or unemployment benefits [source: IRS].

The EITC is designed to help low-income working families stay above the poverty line. For that reason, there is a limit to how much money you can make and still qualify for the credit. For the 2020 tax year, the income limit starts at $15,820 for single, head of household or qualifying widow(er) filers with no children and increases for married couple and families with one or more children. The very highest income limit is $56,844 for a married couple with three or more children.

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The amount of your EITC increases as your earned income increases up to a certain level. For every dollar you earn above that peak level, the amount of your EITC decreases until you reach the income limit for your filing status and family size. For that reason, a married couple with three children that earned $40,000 in 2020 would receive 3,542 in EITC, while a similar family that earned $15,000 would receive $6,660 in EITC. The greater the need, the larger the credit.

Finally, let's find out exactly how to claim the EITC on your tax return.