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What is an Earned Income Credit?

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  • Written By: Brendan McGuigan
  • Edited By: Bronwyn Harris
  • Last Modified Date: 16 September 2016
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An earned income credit is a credit that grants a refund of federal income taxes. There are also forms of earned income credit available at some state levels, and even within some municipalities. Although the earned income credit is rather small for individuals who have no children, for individuals with children, the credit can be fairly substantial. The main purpose of the earned income credit is to address matters of poverty, by providing a credit that offers a great deal of relative relief to those who make small amounts of earned income each year.

In the United States, the earned income credit is available both for qualifying individuals with children, and those without. For those without children the credit is rather small, with a maximum of $438 US Dollars (USD) for those with an income between $5,596 and $6,999 USD. Those making less or more than this bracket have a smaller earned income credit, and there is no available credit for those making more than $12,590 USD.

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For those with children, the earned income credit becomes much more substantial, and it is really for this group that the credit was introduced. For a group with a single child, there is a maximum earned income credit of $2,853 USD for those making between $8,392 and $15,399 USD. Those making less than this amount have a smaller credit, equal to 34% of their income, and those making more than this amount have a smaller credit, equal to $2,853 USD minus 15.98%. Those making more than $33,241 USD who have a single child are not eligible for any earned income credit.

People with two or more children qualify for an even larger credit. For those with an income of between $11,791 and $15,399 USD the credit is $4,716 USD. For those making less, the credit is equal to 40% of their income, and for those making more it is equal to $4,716 USD minus 21.06% of their income. People making more than $37,783 USD who have two or more children are not eligible for any earned income credit. In the case of people filing jointly, the plateau range extends an extra $2,000 USD, so that a couple would qualify for the maximum credit with one child and a combined income of up to $17,399 USD, and would qualify with two or more children and a combined income of up to $39,783 USD.

A number of things disqualify a person from receiving the earned income credit, as it is designed primarily to assist low-income families. For example, any person or couple with more than $2,900 USD in investment income is not able to receive the earned income credit. Everyone involved, including the claimed children and the people filing the claim, must have a valid Social Security number. And anyone hoping to receive the credit must have resided in the United States for more than half of the tax year being filed for, with an exception made for those who served a tour of duty in the Armed Forces that took them out of the country for more than half the year.

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