California is one of the most expensive states to live in – but numerous tax credits can lighten the load for working individuals and families. Specifically, the California Earned Income Tax Credit (CalEITC) can enhance your tax refund from the state. In addition, taxpayers who qualify for this credit often can claim a host of other refunds to make filing taxes a slam dunk. Here’s how the CalEITC benefits lower-income individuals and families and how to qualify.
A financial advisor can help optimize your financial plan to lower your tax liability.
What Is the California Earned Income Tax Credit?
The California Earned Income Tax Credit (CalEITC) is a state-level tax credit for low-to-moderate-income working individuals and families. The CalEITC is modeled after the federal Earned Income Tax Credit (EITC) but is specific to California. As a refundable tax credit, the CalEITC provides a payout if the filer owes no state taxes. Therefore, qualifying California residents always benefit financially from claiming it.
The credit amount depends on how many qualifying children the tax filer claims. For tax year 2023, a filer not claiming children will receive up to $285. Filers with one child will receive up to $1,900. Having two children increases the amount to $3,137, and three children raises it to $3,529.
Who Is Eligible for the California Earned Income Tax Credit?
California residents must meet the following criteria to qualify for the CalEITC:
- Your annual income must be between $1 and $30,950.
- You must be at least 18 years old or be the caregiver of a qualifying child.
Additionally, qualifying children must also meet the following criteria:
- They must be your child, stepchild, foster child, sibling, step-sibling, or a descendant of any of those.
- The child must also have the same principal residence as you in California over half of the tax year.
- The child must be under age 19 at the end of the tax year.
Take note: If you have children who are a full-time students at least five months in a tax year, they can also qualify up to the age of 24. And those who are permanently and totally disabled could be included at any age.
How to Claim the California Earned Income Tax Credit?
You can claim the CalEITC by completing and submitting Form 3514 when you file state taxes. Attach the form to your California Form 540, Form 540 2EZ, or Form 540NR.
If you don’t have a Social Security number (SSN), you can provide your individual taxpayer identification number (ITIN). You’ll also need the SSN or ITIN of each of the qualifying children you claim. You’ll also provide your date of birth (if you’re filing jointly, your spouse’s date of birth as well).
You should have a clear understanding of your income level and dependent situation before claiming the credit. If you know you’re not eligible but try to game the system by claiming the credit, the state might disqualify you from claiming it for the next 10 years. Remember, the credit is for working households that need help to make ends meet.
If you realize you qualified for the CalEITC in past years but didn’t claim it, you might still be able to receive it. California tax laws allow filers to amend tax returns to receive missed credits.
Other Tax Credits
Qualifying for the CalEITC means you may be eligible for other tax credits when you file. First, California also provides a Young Child Tax Credit (YCTC). This credit provides up to $1,117 for households earning up to $30,931 with a qualifying child under six years old. Households with zero income and net losses up to $33,497 can also claim this credit since tax year 2022. Multiple children do not increase the credit amount.
Second, the federal earned income tax credit (EITC) works like the CalEITC but with different income thresholds. Basic qualifying criteria from the IRS includes:
- You earned less than $63,398 in tax year 2023
- Your investment income is $11,000 or less for tax year 2023
- You must be a U.S. citizen or resident
- You need a Social Security number on or before your tax return due date
- If you’re separated and not filing a joint tax return, you must meet other rules
- You don’t file Form 2555 to exclude foreign earned income
- You’re someone else’s qualifying child for the EITC
For 2023, the EITC income limits are as follows:
|# of Children
|Single/Head of Household/Widowed filers
|Married Filing Jointly
|3 or more
|Up to $6,604
|Up to $3,995
|Up to $600
The federal government also provides a Child and Dependent Care Credit. If you paid for the care of a child under age 13 or a dependent adult, you can receive a $3,000 credit for one dependent or $6,000 for two or more dependents.
Similarly, you can claim the Child Tax Credit on your federal taxes. You can qualify for this credit if you have any dependent children under age 17. The credit can lower your taxes by up to $2,000 per child, and $1,600 of the credit is refundable for 2023.
Additionally, if you’re furthering your education or claiming a student as a dependent, you may qualify for the American Opportunity Tax Credit, which offers a maximum annual credit of $2,500.
The CalEITC can provide financial support to low-to-moderate-income working individuals and families in the state. As a refundable tax credit, it ensures that qualifying California residents receive a payout, even if they owe no state taxes. The credit amount varies based on the number of qualifying children claimed, offering significant financial relief to eligible filers.
Tips for Claiming the California Earned Income Tax Credit
- Filing your taxes and claiming credits requires you to submit the right forms and supply all the necessary information. Understanding what to do and how to file can be confusing. Fortunately, financial advisors and tax professionals can help you maximize your refund every year. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Taxpayers usually deal with state and federal taxes once per year. However, other taxes, such as California sales taxes, incur costs every day and can add up with a lot of purchases.
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