EITC

The Earned Income Tax Credit is a refundable federal tax credit designed to boost income for low-to-moderate income workers, particularly those with qualifying children. Because it's refundable, it can reduce a filer's tax liability below zero and pay out the difference as an actual refund, unlike non-refundable credits that only offset tax owed down to zero.

The credit amount follows a curve based on earned income and number of qualifying children, phasing in as income rises from zero, plateauing at a maximum, then phasing out entirely above a certain income threshold. Filers with three or more qualifying children can receive a credit up to several thousand dollars, meaningfully higher than the credit available to childless filers.

There's no single formula, EITC amount depends on a phase-in, plateau, phase-out structure that varies by filing status and number of qualifying children, published in IRS tables each year.

A single parent with two qualifying children earns $28,000 in a given tax year. Based on the applicable EITC schedule for that income level and family size, they might qualify for a credit in the range of $5,000-6,000.

If their computed tax liability before credits is only $1,200, the EITC doesn't just zero that out, the excess amount above their liability is paid as part of their refund, since EITC is refundable rather than capped at reducing tax to zero.

• Refundability is the defining feature. EITC can generate a refund even for filers with little or no tax liability to begin with, unlike most credits.
• Credit amount scales with number of qualifying children, up to a point. Three or more children generally produces the maximum credit tier, additional children beyond that don't increase it further.
• Investment income above a certain threshold disqualifies filers. Even with otherwise qualifying earned income, exceeding the investment income limit removes EITC eligibility entirely.
• One of the most commonly missed and commonly misclaimed credits. Its relatively complex eligibility rules mean some eligible filers don't claim it, while others claim it incorrectly, tax software or professional help reduces both risks.
• Amount phases in and back out, it's not simply larger at lower incomes. The credit builds from zero, plateaus at a maximum, then phases down and out entirely above an income ceiling specific to filing status and family size.