2014 Earned Income Tax Credit EITC Calculation Example

A formula presentation of the EITC calculation follows (where category reflects EITC factors based on the number of children and filing status, and AGI is equal to gross income from all taxable sources such as earned income, dividends, taxable interest, alimony, capital gains, taxable pensions, etc., less statutory adjustments).

 

2014 Earned Income Tax Credit EITC Calculation Example

EITC =
Lesser of: earned income or maximum earnings amount category
times
credit ratecategory
minus
Greater of 0 or [earned income (or AGI, whichever is larger) minus phase-out income level category times phase-out rate category]

The following three examples for a married couple with two children in tax year 2014, illustrate how the EITC is calculated. Example 1. For a family receiving less than the maximum allowable credit, with earned income and AGI of $10,000 (which is less than the maximum earned income amount):

EITC = $10,000 times 40% = $4,000

Example 2. For a family receiving the maximum allowable with earned income and AGI of $20,000 (which is greater than the maximum earned income amount but less than the phase-out income level):

EITC= $13,650 (the maximum earned income amount) times 40%
= $5,460 (the maximum credit)

Example 3. For a family subject to the phase-out of EITC with earned income and AGI of $25,000 (which is greater than the maximum earned income amount and the phase-out income level):

EITC = $13,650 (the maximum earned income amount) times 40% or $5,460 (the maximum credit)
minus
$1,740 (the amount by which income exceeds the phase-out income level [$23,260]) times 21.06%
or $366
= $5,094