What is the Earned Income Tax Credit, and how do I qualify for it?

Today's question comes from Tamara T. of Athens, Ga. She asks about a frequently misunderstood and surprisingly overlooked portion of the federal tax code - the Earned Income Tax Credit. We'll try to make it understandable.

Q: What is the Earned Income Tax Credit, and how do I qualify for it?

A: In the United States, the EITC is atax credit that reduces or even eliminates the taxes that some low-income working
people pay.

Put into law in 1975, the EITC was expanded in 1986, 1990, 1993, and 2001.
In essence, it functions as a wage subsidy for low-income workers.

According to the IRS:

To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a tax return.

The EITC has no effect on certain welfare benefits. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments.

The IRS has certain rules and guidelines to determine if you qualify for a full or partial tax credit. If you'd like to see if you qualify, gather up your W-2's and other tax records and visit the IRS website to fill out a questionaire that will determine your eligibility.

The Center on Budget and Policy Priorities also has an excellent Tax Credit Outreach Kit that you may want to investigate to learn more.

Got a tax question? Send it to us!