Earned Income Tax Credit - Explained
What is an Earned Income Tax Credit?
Written by J. Mance Gordon
Updated at April 17th, 2024
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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)
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.