Here's 1 Valuable Tax Credit You Don't Want to Miss Out On

Taxes are a burden for working Americans across a wide range of incomes. But lower earners more so than anyone tend to struggle to keep up.

Thankfully, the IRS offers a bit of relief in the form of the Earned Income Tax Credit, or EITC. For the 2018 tax year, the EITC could be worth up to $6,431, so it pays to see whether you qualify for it.

How tax credits work

Unlike a tax deduction, which simply exempts a portion of your income from taxes, a tax credit is a dollar-for-dollar reduction of your tax liability. This means that if you qualify for a $2,000 tax credit, $2,000 automatically gets subtracted from your tax bill.

Image source: Getty Images.

Now many tax credits are nonrefundable, which means the most they can do is knock your tax liability down to $0. For example, if you owe the IRS $500 in taxes but qualify for a $1,000 tax credit, you won't get that $500 difference if the credit in question in nonrefundable. The EITC, however, is one of the few tax credits that is refundable, which means that if it lowers your tax burden below $0, the IRS will send you the difference.

Qualifying for the EITC

The EITC is designed to help lower earners, and to qualify for the credit, you will need earned income from a job or business that you own. Also, your tax filing status must be one of the following:

Single Married filing jointly Head of household Qualifying widow

Additionally, you can't have investment income in excess of $3,500 if you want to claim the EITC.

If you meet the above criteria, you can claim the EITC if you have the following number of qualifying children in your household and your earnings don't exceed the following limits:

Tax Filing Status

No Qualifying Children

1 Qualifying Child

2 Qualifying Children

3 or More Qualifying Children

Single, head of household, or widowed	$15,270	$40,320	$45,802	$49,194
Married filing jointly	$20,950	$46,010	$51,492	$54,884

Data source: IRS.

Keep in mind that if you have children, there are other tax credits you might be eligible for, like the Child Tax Credit or the Child and Dependent Care Credit (if you pay for child care in order to work). You're allowed to claim multiple credits on your taxes, so it pays to explore your options.

As far as the EITC's value goes, it'll depend on the number of children in your household, as follows:

Number of Qualifying Children

Maximum Value of EITC

0	$519
1	$3,461
2	$5,716
3	$6,431

Data source: IRS.

Now remember how we talked about the fact that the EITC is a refundable tax credit? If your tax liability is $0 and you qualify for the EITC's maximum value, the IRS will send you $6,431. To get that money, however, you'll need to file a tax return and actually claim the credit -- something an astounding 20% of eligible filers fail to do every year.

One final thing: The above earning limits and credit values apply to the 2018 tax year -- meaning, the tax return you'll be filing this year. In 2019, you can earn slightly more and still claim the credit if you otherwise qualify. The maximum value of the EITC has also gone up to $6,557 for the 2019 tax year, so if you claim it on your 2018 taxes, be sure to keep it on your radar for the following year as well.