The Internal Revenue Service created the Earned Income Tax Credit for low to moderate income tax payers. The credit can significantly reduce your tax liability or result in a refund. The amount you receive is based on your adjusted gross income and the number of qualifying dependents you have in your home.
Adjusted Gross Income
Your adjusted gross income helps you determine which tax credits you qualify for each year. You can calculate your AGI by subtracting your deductions from your income. If you are accustomed to claiming substantial tax deductions, such as self employment business expenses, your AGI could help you qualify for an earned income tax credit.
AGI limits change each year for the Earned Income Tax Credit. As of 2010, the maximum you could earn as a single tax payer with three or more qualifying children was $43,352. If you have two qualifying dependents as a single tax payer, your income cannot be higher than $40,363. With one qualifying dependent, $35,535 is the maximum income you can receive. Tax payers with no qualifying dependents can make no more than $13,460 per year.
The amount you receive in tax credits varies based on the number of dependents in your home. As of 2010, if you have three or more qualifying dependents, you could receive up to $5,666 in tax credits. Two qualifying dependents yields a $5,036 tax credit and one qualifying dependent yields a credit of $3,050.
Earned Income Tax Credit
The Earned Income Tax Credit is not considered a taxable source of income. If you receive public assistance such as Temporary Assistance for Needy Families or Food Stamps, you do not have to report refunds due to tax credits on your application.
Qualifying Child Dependents
If you provide more than 50 percent of financial support for a child living in your home, the child may be a qualifying dependent. However, if you share custody with another parent, the child must pass the residence test in order to be considered toward your tax credit. The residence test states that the child must live with you more than 50 percent of the year in order for the child to qualify as your dependent.