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The Earned Income Tax Credit and the Child Tax Credit are both programs designed to help alleviate poverty, but there are key differences. The EITC is a credit available to employed, low-income households. It is intended to boost the effective income of people who are employed. The CTC is a credit available to employed households with children. This credit is intended to help offset the costs of raising children. Both can be very valuable for qualifying taxpayers.
A financial advisor can potentially help you identify tax deductions and credits you may qualify for, and show how to incorporate them into a broader tax planning strategy.
What Is the Earned Income Tax Credit?
The Earned Income Tax Credit, or EITC, is a federal tax credit available to low-income households. This applies only to federal taxes, meaning that it is not available on state and municipal filings, although several states also offer their own version of this credit. You must file a tax return in order to claim the EITC.
As a tax credit, the EITC reduces your total tax liability on a dollar-to-dollar basis. This means that for every dollar of credit you receive, your taxes directly go down by that amount. (This is as opposed to a deduction, which only indirectly reduces your taxes by reducing the amount of income you get taxed on.) The EITC is also fully refundable, meaning that if it reduces your tax burden below $0 the IRS will send you a check for the difference.
Although intended as an anti-poverty measure, unemployed households do not qualify for the EITC. Instead, this credit has a minimum income requirement. This is known as the earned income requirement, or the “credit rate,” and is intended to encourage work.
How the Earned Income Tax Credit Works
The amount of this tax credit is based on a sliding scale: The more money you make (based on your filing status and income) the smaller your applicable tax credit. The amount you are eligible to receive depends on your income, your filing status (single, married or head of household) and how many children you claim on your taxes.
2025 Earned Income Tax Credit Limits
| Number of Children | Maximum Earnings for Singles, Married Filing Separately and Heads of Household | Maximum Earnings for Joint Filers | Maximum EITC |
|---|---|---|---|
| 0 | $19,104 | $26,214 | $649 |
| 1 | $50,434 | $57,554 | $4,328 |
| 2 | $57,310 | $64,430 | $7,152 |
| 3+ | $61,555 | $68,675 | $8,046 |
2026 Earned Income Tax Credit Limits
| Number of Children | Maximum Earnings for Singles, Married Filing Separately and Heads of Household | Maximum Earnings for Joint Filers | Maximum EITC |
|---|---|---|---|
| 0 | $19,540 | $26,820 | $664 |
| 1 | $51,593 | $58,863 | $4,427 |
| 2 | $58,629 | $65,899 | $7,316 |
| 3+ | $62,974 | $70,244 | $8,231 |
Households that file their taxes as married filing separately must meet certain special criteria to qualify for this tax credit. Typically, this filing status must have a qualifying child to claim the EITC. Meanwhile, the EITC is ordinarily very small for households without children.
The EITC phases in at a rate of 7.65% per dollar earned up until you reach the maximum amount of credit for your filing status. For example, say you earned $100. You would qualify for an earned income tax credit of $7.65 (since this is 7.65% of $100). In tax year 2025, as another example, a childless individual will receive their maximum EITC at $8,680 (since 7.65% of $8,680 is $664).
What Is the Child Tax Credit?
The Child Tax Credit, or CTC, is a federal tax credit designed to help families with children. As a federal tax credit the CTC only applies to your federal taxes, although many states run similar programs. You must file a tax return with the IRS in order to claim the CTC.
As a tax credit, this program reduces your total tax liability on a dollar-to-dollar basis. Your taxes directly go down for every dollar that you qualify for. There are two components to this:
- The CTC offers a non-refundable tax credit. This means it can reduce your tax liability to $0, but it cannot generate a refund on its own. It cannot reduce your taxes below that amount.
- The Additional Child Tax Credit (ACTC) is a component of the CTC. It allows a portion of the credit to be refunded, meaning you may receive a payment even if your tax liability is $0, subject to income-based limits.
Under pre-2025 rules, households could receive up to $2,000 per eligible child. The One Big Beautiful Bill Act (OBBBA) increased the maximum credit to $2,200 per qualifying child under age 17, starting in tax year 2025. Families can still receive up to $500 for each qualifying dependent who is 17 or older.
Want to see the potential effect of tax credits and deductions? Get an estimate with our income tax calculator.
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Our income tax calculator calculates your federal, state and local taxes based on several key inputs: your household income, location, filing status and number of personal exemptions.
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First, we calculate your adjusted gross income (AGI) by taking your total household income and reducing it by certain items such as contributions to your 401(k).
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Next, from AGI we subtract exemptions and deductions (either itemized or standard) to get your taxable income. Exemptions can be claimed for each taxpayer.
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Based on your filing status, your taxable income is then applied to the tax brackets to calculate your federal income taxes owed for the year.
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Assumptions
Deductions
- "Other Pre-Tax Deductions" are not used to calculate state taxable income.
Credits
- The only federal credit automatically calculated is the Savers Credit, depending on your eligibility.
- We do not apply any refundable credits, like the Child Tax Credit or Earned Income Tax Credit (EITC).
- We do not apply state credits in our calculations.
Itemized Deductions
- If itemizing at the federal level, you may need to itemize at the state level too. Some states don't allow itemized deductions, which is accounted for in our calculations.
- When calculating the SALT deduction for itemized deductions, we use state and local taxes, and we assume your MAGI.
- We assume that there is no cap to itemized deductions, if a state allows them.
- We do not categorize itemized deductions (such as medical expenses or mortgage interest), which could be subject to specific caps per state.
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- Depending on the state, we calculate local taxes at the city level or county level. We do not include local taxes on school districts, metro areas or combine county and city taxes.
- With the exception of NYC, Yonkers, and Portland/Multnomah County, we assume local taxes are a flat tax on either state taxable income or gross income.
Actual results may vary based on individual circumstances and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee income tax amounts or rates. Past performance is not indicative of future results.
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How the Child Tax Credit Works
The credit phases in with earned income. Generally, you can receive a refundable amount worth up to 15% of your earned income above $2,500, up to the maximum refundable amount per child. Families with very low income may receive only a partial credit based on this calculation.
The credit begins to phase out once income exceeds:
- $400,000 for married couples filing jointly
- $200,000 for all other filers
For income above these thresholds, the credit is reduced by $50 for every $1,000 of additional income.
Under prior law, up to $1,600 of the credit was refundable. The pandemic-era expansions from 2021, including fully refundable credits, monthly advance payments and increased amounts up to $3,600, have expired and are no longer in effect.
As of the OBBBA’s passage, the updated $2,200 per-child credit and the existing phaseout thresholds apply for 2025 and 2026, unless changed by future legislation. Starting in 2025, the maximum credit is $2,200 per qualifying child, with up to $1,700 of that amount refundable. These amounts may continue to adjust over time based on inflation.
Bottom Line
The Earned Income Tax Credit is a refundable tax credit intended to reduce poverty. This tax credit is primarily available for families with children, and it phases out as you earn more money. The Child Tax Credit, a partially refundable tax credit worth up to $2,200 per eligible child, is intended to help parents pay for raising children.
Tax Planning Tips
- A financial advisor can help you navigate tax credits and other financial questions. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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.
- Interested in seeing what you might owe in taxes, taking all credits into account? Get an idea with SmartAsset’s free tax calculator.
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