What is the Earned Income Tax Credit?

What is the Earned Income Tax Credit?

February 18, 2019         Written By Bill Hardekopf

It is tax time in the United States, and many Americans are trying to make sense of the new tax code and hoping they qualify for a return instead of having to pay.

One thing that could ensure a return is qualifying for the Earned Income Tax Credit (EIC or EITC), which is a benefit for those who have low to moderate income. To qualify for the Earned Income Tax Credit, you must meet a number of criteria, including:

  • Have earned income and are filing a tax return (without Form 2555 or 2555-EZ).
  • Been a U.S. citizen or resident alien for the full tax year.
  • Have a valid Social Security number for yourself, your spouse (if filing jointly) and any children you are claiming on your return. If you are not claiming any children, you (or your jointly filing spouse) must have been born between January 1, 1954 and December 31, 1993. You do not qualify for EIC if someone else can claim you as a dependent.
  • Not have investment income over $3,500.

To earn the Earned Income Tax Credit, your earned income and adjusted gross income must be lower than:

  • If you are not claiming a child, $15,270 (or $20,950, if filing jointly).
  • One child, $40,320 (or $46,010, if filing jointly).
  • Two children, $45,802 (or $51,492, if filing jointly).
  • Three or more children, $49,194 (or $54,884, if filing jointly).

If you qualify for the EIC, you will not get your return until mid-February (February 27 in 2019).

What should I do with my tax return?

If you are receiving a tax refund this year, try not to spend the money on items you do not need. Instead, take this as an opportunity to improve your financial situation.

First, pay off any debt the return will cover. As you may be aware, credit cards charge interest (sometimes as high as 29.99%). The faster you can pay off (or at least decrease) your debt, the more money you will save in the long-term.

If you are already debt-free, put some money aside for a rainy day. Most experts suggest having six months worth of expenses in savings. Thus, if your expenses are $3,000 each month, you should aim to have $18,000 in savings. These funds will help you cover unforeseen employment lapses or emergency expenses.

Finally, you may want to consider using your refund to get a secured credit card. If you do not have a credit card, you may not realize they make transactions safer and more convenient.

A secured credit card can also help you build or rebuild your credit. Even though you deposit the funds that create your credit line, a secured credit works much like an unsecured card. You use it to make purchases in stores and online, then you must pay your bill on time each month. After six months to a year of responsible use, you may see your credit score start to increase.

Top Secured Cards for 2019

Here are three of the top secured cards you should consider applying for with your earned income tax credit:

Capital One® Secured Mastercard®

cap card image
With the Capital One® Secured Mastercard®, you complete an application, and once approved, you will be notified of the amount of the refundable security deposit that you must make, which will be $49, $99 or $200 based on your creditworthiness. You will then receive a credit line between $200 and $3,000. You receive a monthly statement, and must make a minimum payment. Pay your balance in full, and you avoid interest charges, which are at an interest rate of 26.99% (Variable) for purchases, cash advances, and balance transfers. Capital One® Secured Mastercard® customers receive extended warranty, auto rental, travel accident insurance, travel assistance, roadside assistance, and price protection. Cardholders also receive complimentary access to Capital One’s CreditWise app. There is no annual fee or foreign transaction fees on this card.

Citi® Secured Mastercard®

card image
Citi introduced the Citi® Secured Mastercard® for people that need to start building their credit score. A security deposit of at least $200 is required for this product. But unlike a prepaid card, this card will help build your credit history since Citi will send monthly notifications to the credit bureaus. There are some helpful tools on this card–like Auto Pay, text/email alerts and online Bill Pay–which assist cardholders in keeping track of their financial situation. The card has an APR of 24.74%* (Variable) . It can be used anywhere that Mastercards are accepted. Unlike a majority of the secured cards on the market, the Citi® Secured Mastercard® has no annual fee.

Green Dot primor® Visa® Gold Secured Credit Card

card image
The Green Dot primor® Visa® Gold Secured Credit Card is an attractive secured card with its low 9.99% fixed APR on purchases; and there is no penalty rate. Credit lines are available from $200 to $5,000, and there are no processing or application fees. There are no minimum credit score requirements with this card, and it has a fast application process. You can secure your credit line with your Personal Savings Deposit account. The Green Dot primor® Visa® Gold Secured Credit Card reports to three national credit bureaus. Unlike the other two cards, there is a $49 annual fee for this card.



The information contained within this article was accurate as of February 18, 2019. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


bill-hardekopf

About Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.
View all posts by Bill Hardekopf
Top Features : Good credit or bank account not required; initial security deposit can be as low as $200
Top Features : No annual fee; builds credit by reporting to major credit bureaus; initial security deposit can be as low as $200
Top Features : No annual fee; reports to major credit bureaus; access to higher credit line after making first 5 monthly payments on time
Top Features : Builds credit by reporting to all 3 major credit bureaus; low fixed 9.99% interest rate; no penalty rate
Top Features : Reports to consumer reporting agencies; no fees for making payments
Top Features : No late fees or interest charges; NetSpend Mobile App to manage account, and get text message or email alerts