As an employer, it's important to understand the Earned Income Tax Credit (EITC) and how it may affect your employees. The EITC is a substantial tax benefit for eligible employees, which can have an impact on payroll processes and employee net income.
Having knowledge of employee tax benefits and credits in payroll can enable you to support your workers while also ensuring your business complies with payroll regulations. In this article, we'll focus on comprehending the EITC.
What Is the Earned Income Tax Credit?
The EITC, or the EIC, is a tax credit for those with low to moderate income. Family size, income levels, and filing status are all factors that impact eligibility for the tax credit. For those who qualify for the credit, the amount of the credit may exceed the amount of the taxes owed. In this case, the worker can collect a tax refund.
How Does the Credit Work?
By law, people who claim the EITC on their tax returns cannot be issued a refund until mid-February. The taxpayer must meet the income qualification to be eligible for the EITC. Taxpayers do not have to have children to qualify for the EITC, but they can claim a higher credit if they do have children. The more children, the larger the credit.
The EITC is known as a refundable tax credit, which means that the credit will reduce the taxpayer's tax bill and collect a refund on any overage.
Who Is Eligible?
A taxpayer may qualify for the EITC if the following is true:
- They worked and earned income below $63,398
- They've earned income from wages, running a farm or running a business
- They have a social security number
- They are not a qualifying child of another taxpayer
- They are a US citizen or resident alien for the entire year
Qualifying taxpayers may have some investment income, but that income must be below $11,000 in 2023. Under some circumstances, taxpayers can file as married but file separately and still qualify for the credit.
Other qualifiers may come into play, so it's important for anyone who is trying to claim the EITC to either be very familiar with the laws or to work with an expert who understands the laws well. You can learn more about who qualifies for the EITC on the IRS website.
Earned Income Tax Credit 2023 Vs. 2024
The EITC's amount can change yearly, depending on factors like inflation and IRS rules. Anyone who qualifies for the EITC can look up new amounts each year on the IRS website. For the 2023 tax year (filed in 2024), the credit amount may range from $600 to $7,430. The exact amount the person claims on their taxes may vary depending on their filing status, income, and how many children they're claiming.
For the tax year 2024 (filed in 2025), the EITC amount will range from $632 to $7,830, depending on the above factors. To learn more about the EITC, including the maximum wage that taxpayers can earn and still qualify for the credit, see the IRS website.
EITC Affects Workers - Learn More by Working With the Experts
There may be more to know about how EITC affects your workers and, thus, your payroll processes. To learn more about EITC and your business payroll, consult with Exact Payroll for guidance on integrating EITC information into your payroll processes.