Earned Income Tax Credit FAQs: Who Qualifies & How to Apply

It’s a new year and a new time for celebration, commitment, and confidence that we can achieve our goals. For many of us, especially after a year of inflation and uncertainty, those goals are financial in nature. Whether it’s finally making your side hustle your main gig or simply getting your budget in order, the IRS has an incentive that could significantly impact your tax return this year—the Earned Income Tax Credit. 

We know that many folks aren’t quite ready to think about their taxes just yet—especially those who are self-employed and dreading their Schedule Cs. But the CPAs at Leadingham Rodgers are gearing up for a new season of tax triumphs. After all, we’re here to help clients proactively approach their financial health. So, let’s take a look at one of the options lower-income taxpayers may have for easing the financial burden this tax season.

What is the Earned Income Tax Credit?

The Earned Income Tax Credit (EITC or EIC) is a financial credit that low- to moderate-income taxpayers can apply toward their taxes. The exact amount granted to each person varies depending on their income and how many children they have. But it’s money on the table that you can use to reduce the amount of taxes that you owe—or increase your IRS refund.

Who Qualifies for the Earned Income Tax Credit?

The EITC was designed to assist families who aren’t making a lot of money, specifically, families with children. That’s why people with more children in their household usually get a bigger credit. However, in recent years, the EITC has also been expanded to help people without children. Now, any U.S. citizen who worked but made less than a certain amount of money per year could benefit from the extra money provided by this initiative.

What is the EITC for 2023?

Anyone who worked and earned income but made less than the threshold amounts (outlined below) may be eligible for between $600 and $7,430 in tax credits. That’s increased for 2023, up from a range of $560 to $6,935 last year, in part due to the Inflation Reduction Act. 

What is a “qualifying child” for tax purposes?

In order to claim a child as part of your EITC application, they must meet the IRS’s rules for a qualifying child. A child qualifies if they:

• Have a valid Social Security Number
• Are younger than you
• Are under age 19, are under 24 and a full-time student, OR are any age and permanently and totally disabled
• Are legally your child, sibling, grandchild, niece, or nephew
• Live in the home with you for more than half of the tax year
• Do not file a joint return with another person (like their husband or wife)

What Disqualifies You from Earned Income Credit?

If you made more total income last year than the amounts listed in the table above, you won’t qualify. Additionally, won’t qualify if you:

• Have investment income of more than $10,000
• Were not a US citizen or resident alien for the entire year or did not live in the US for more than half the tax year
• Need to file a Form 2555 for foreign earned income
• Do not have a valid Social Security Number
• Did not earn any income

There are also special qualifying rules for members of the military and the clergy, as well as taxpayers with disabilities. If these situations apply to you, visit your local CPA for help determining your eligibility!

Can a Business Owner Get Earned Income Credit?

Self-employed taxpayers and sole proprietors can qualify for the EITC if they meet the requirements listed above. If your total earnings from all sources—including wages and tips from all jobs, gig work, and side hustles you had in 2022—fall below the thresholds, you can apply for the credit.

When filing your tax return, the IRS requires you to report all business income and deduct all allowable business expenses to arrive at your net earnings. Businesses have their own separate tax credits and deductions outside of the EITC.

If you need help understanding which tax credits or tax deductions apply to you, the tax preparation experts at Leadingham Rodgers are happy to help.

How Do I Claim the EITC?

If your tax situation is fairly simple or straightforward, you can claim the credit with an e-filing service. But for more complex situations, especially for independent contractors, a trusted Certified Public Accountant can help. At Leadingham Rodgers, our team has helped thousands of people, from individuals to large businesses, prepare and file their tax returns accurately and optimally. 

Call Leadingham Rodgers today if you’re ready to get help preparing and filing your tax return for the 2023 tax season!

Leadingham Rodgers: Expert Tax Services for Montgomery, AL

With deep roots in the local community, the CPAs at Leadingham Rodgers take an active role in all our clients’ financial futures. We keep current on all the latest tax laws, identifying tax planning and preparation opportunities that can optimize your liabilities today and in the future. Whether you’re an independent contractor or running a business with 500+ employees, our accountants have the knowledge and expertise to maximize your savings. Call us today at 334-721-2548 or contact us online to learn more.