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Earned Income Tax Credit - Explained

What is an Earned Income Tax Credit?

Written by Jason Gordon

Updated at April 8th, 2022

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Table of Contents

What is an Earned Income Tax Credit?2021 Earned Income Tax CreditHow is the Earned Income Tax Credit Used?Academic Research on the Earned Income Tax Credit

What is an Earned Income Tax Credit?

There earned income tax credit is a tax credit for low-income individuals. The EITC is a refundable credit, meaning that the individual can actually receive back from the federal government more money than they paid into taxes. 

2021 Earned Income Tax Credit

(for taxes due in April 2022)

Number of children

Maximum earned income tax credit

Max earnings, single or head of household filers

Max earnings, joint filers

0

$1,502

$21,430

$27,830

1

$3,618

$42,158

$48,108

2

$5,980

$47,915

$53,865

3 or more

$6,728

$51,464

$57,414

Back to: Accounting & Taxation

How is the Earned Income Tax Credit Used?

President Ford introduced EITC in 1975. At start it was temporary but in 1978 it became permanent. Its purpose was to compensate low-income families. The EITC us not meant to disincentivize active employment, so the EIC phases in slowly, plateaus, and then phases out slowly. It phases out completely at 21% of income for more than one qualifying child or 16% of income for one qualifying child. Remember, this percentages are within previously mentioned salary ranges for individuals or couples with children. With this structure, it is always preferable to have one more dollar of actual salary or wages than to depend upon the EITC.

eitc earned income tax credit

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