Recently, in a major overhaul for American taxpayers, the IRS disclosed new inflation adjustments that will help various tax credits and deductions for the 2024 tax year. Among these many adjustments, one of the most important was the increase in the earned income tax credit, allowing eligible individuals to receive up to $8,046. The article highlights what an individual must do to qualify for this increased benefit and how this will influence American families.
Earned Income Tax Credit
The Earned Income Tax Credit is a federal income tax credit that’s intended to benefit low- to moderate-income working individuals and families, especially those with children. EITC reduces the amount of tax one owes. It may even give a refund, provided the credit amount is more than the taxes owed. The credit amount eligibility depends on income, filing status, and number of qualifying children.
For the tax year of 2024, the Earned Income Tax Credit for three or more qualifying children has now increased from $7,830 to $8,046. This is an adjustment in a series of efforts being put in place to try to bring some financial ease with increased living costs brought on by inflation.
Seven IRS requirements
In order for the taxpayer to qualify for EITC and thus receive this added benefit, there are specific requirements as set forth by the IRS. Here are seven of the most important ones:
- Earned Income requirement: The taxpayer must have earned income from either employment or self-employment. Investment income must be below a threshold, for 2024 that threshold is set at $11,000.
- Filing status: Filers can file as single, married filing jointly, head of household, or qualifying widow(er). Filers who file as married filing separately are not eligible for the EITC.
- Qualifying children: The taxpayer needs to have three or more qualifying children in order to receive the maximum amount of credit. For two, it is less and for one, even lesser.
- Age requirement: Taxpayers must be at least 25 years of age but less than 65 years as of December 31 of the tax year. If a qualifying child is involved, there is no minimum age requirement.
- Residence: The taxpayer must have lived in the United States for more than six months during the tax year. The qualifying children must also have resided with the taxpayer in the U.S.
- Social Security Number: Each of the persons on the tax return must have a valid SSN at the time of filing the tax return, including the qualifying children.
- Income limits: Taxpayers’ adjusted gross income must fall below a certain level that corresponds to the filing status and number of qualifying children. Joint married filers who have three or more children, for example, can have no more than an AGI of approximately $59,187.
Increased EITC’s implications
Of particular note is the EITC increase that will provide much-needed relief to millions of American families struggling through hard economic times inflamed by inflation. More specifically, additional support can relieve some financial burdens with increased costs in housing, food, and healthcare.
The EITC has been actually considered over the years to be one of the most effective tools in trying to reduce the poverty level among working families in America. Encouraging work by incentivizing and offering financial aid, it covers most categories and encourages low-income workers into the workplace or to stay there.
Filing considerations for taxpayers
This will mean everything with eligibility and potential benefits in mind as taxpayers get ready for tax season in early 2025. It would, therefore, be wise for individuals to carefully go over their financial situations and perhaps consult a tax professional to make sure they do not miss any credits they are entitled to.
Taxpayers should also be aware of any changes to the tax laws that might have an effect on their filings. Keeping up to date with information from the IRS, regarding inflation adjustments, will help families plan well in advance for their financial futures.
