Earned Income Credit helps low and moderate income workers and families get a tax break. If you qualify, the EIC credit reduces the amount of tax you owe and may result in refunds or increase your refund.The amount of your credit may change if you have children, dependents, are disabled or meet other criteria.
Military and clergy have special EITC rules because using this credit may affect other government benefits.
What is Earned Income:
Earned income includes all the taxable income and wages a person gets from working for someone else, for oneself or from a business or farm one owns.
Types of Earned Income: As per IRS following is considered as Earned Income
- Wages, salary or tips where federal income taxes are withheld on Form W-2, box 1
- Income from a job where the employer didn’t withhold tax (such as gig economy work) including:
- Driving a car for booked rides or deliveries
- Running errands or doing tasks
- Selling goods online
- Providing creative or professional services
- Providing other temporary, on-demand or freelance work
- Money made from self-employment, including if you: Own or operate a business or farm
- Are a minister or a member of a religious order
- Are a statutory employee and have income
- Benefits from a union strike
- Certain disability benefits you got before you were the minimum retirement age
- Nontaxable Combat Pay (Form W-2, box 12 with code Q)
- If you claim nontaxable combat pay as earned income, it may increase or decrease the amount of your EITC.
Earned income does not include:
- Pay you got for work when you were an inmate in a penal institution
- Interest and dividends
- Pensions or annuities
- Social Security
- Unemployment benefits
- Alimony
- Child support
