In the United States, the IRS (Internal Revenue Service) provides an earned income tax credit (EITC) that benefits both low-income families and families with children. The tax credit changes in value depending on the family's financial situation and dynamic.
How is the Earned Income Tax Credit Calculated?
A taxpayer's refund credit depends on his or her income. The amount of the credit decreases as income gets larger, then increases based on the number of children in the family.
For example, in 2014, the maximum credit for families with three or more children was over $6,000, while families with no children could claim a maximum of $496, according to the Tax Policy Center.
Who is Eligible for the EITC?
The IRS imposes limits for the earned income tax credit based on the adjusted gross income of a taxpaying family. The limits range from $14,590 for childless families to $46,997 for families with at least three children.
Other qualifications also apply. You must possess earned income for the year (money earned as salaries, wages, tips, or other work-related income). Additionally, you cannot bring more than $3,350 into the home via investments. If you are married, you and your spouse must file your taxes jointly to qualify.
Understanding the earned income tax credit helps taxpayers take advantage of the benefits for which they are eligible. If you have children or low earnings, the IRS helps subsidize your income through tax credits like the EITC.
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