Definition
The Earned Income Tax Credit is a refundable credit for low to moderate income working taxpayers.
How It Works
The credit amount depends on earned income and number of children, increasing with income up to a point and then phasing out. Because it is refundable, it can produce a refund larger than tax withheld.
Example
A working parent with modest income receives the EITC as a refund.
Who It Applies To
Lower-income working taxpayers.
Watch-Outs
It phases out entirely at higher income, so it generally does not apply to the high earners this glossary focuses on, but it is included for completeness.
