Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable tax credit aimed at supporting low to moderate-income working individuals and families in the U.S. Unlike standard tax deductions, the EITC is designed to reward employment by reducing the tax burden and increasing take-home pay.

What is an earned income tax credit?

The Earned Income Tax Credit is a federal benefit for working individuals and families with low to moderate income. It reduces the amount of taxes owed and may result in a refund, even if no tax is due. Its purpose is to supplement wages and incentivize employment.

What is an example of unearned income?

Unearned income includes money received without active work involvement, such as:

Interest and dividends
Capital gains
Rental income
Pensions and annuities
Social Security benefits
Unemployment compensation

What is the difference between earned and unearned income?

Earned income is wages, salaries, tips, and net earnings from self-employment—income earned through work.

Unearned income is money from sources like investments, benefits, or property that does not involve active work.

What is the Earned Income Tax Credit for 2025?

For the 2025 tax year, the Earned Income Tax Credit (EITC) offers:

Up to $8,046 for families with 3+ children
$7,152 for 2 children
$4,328 for 1 child
$649 for no children

Eligibility depends on income, filing status, and number of qualifying children. The investment income limit is $11,950.

What is the importance of EITC in the U.S. tax system?

The EITC is one of the most effective tools for reducing poverty in the U.S. It:

Supplements wages for working individuals and families
Lifts millions of people, especially children, above the poverty line
Encourages employment over dependency on welfare
Stimulates local economies by increasing consumer spending

Who qualifies for Earned Income Tax Credit?

Qualifying individuals for the EITC include:

Workers with earned income below IRS limits
Those filing jointly, head of household, or single
Workers with valid Social Security numbers
People aged 25–64 (if claiming without children)
Taxpayers who do not exceed investment income limits
Parents or guardians with qualifying children who meet relationship, age, and residency requirements

Employee pulse surveys:

These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).

One-on-one meetings:

Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.

eNPS:

eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.

Based on the responses, employees can be placed in three different categories:

Promoters
Employees who have responded positively or agreed.
Detractors
Employees who have reacted negatively or disagreed.
Passives
Employees who have stayed neutral with their responses.

How to calculate Earned Income Tax Credit?

Calculating the EITC involves:

Determining your earned income (wages, tips, self-employment income)
Identifying your filing status
Counting your qualifying children
Using the IRS EITC tables or online calculators to find your exact credit
Applying any phase-out rules if your income exceeds certain thresholds

Tax software and the IRS EITC Assistant can guide you step by step.

What are the eligibility criteria for Earned Income Tax Credit (EITC?

To qualify for the EITC, taxpayers must meet several criteria:

Earned income: Must come from employment or self-employment.
Filing status: Must file as single, married filing jointly, head of household, or qualifying widow(er).
Age requirements: Must meet minimum and (for childless filers) maximum age limits.
Qualifying dependents: Must meet IRS rules regarding age, relationship, and residency.
Income limits: Must fall within income thresholds based on family size
Valid social security number: Required for both taxpayer and dependents