Indiana's earned income tax credit (EITC) has been in effect since 1999, but the state changed it to mirror the terms of the federal credit in 2003 and further adjusted it in later years. It's a refundable credit intended for low-income working families and individuals, so you'll receive the difference in cash if the amount of your tax credit is more than the taxes you owe.
- Indiana's Earned Income Tax Credit works like the federal version: it reduces tax liability for low-income earners, with any amount leftover given back as a refund.
- Eligibility rules for the EITC are complex, and based on income, family size, citizenships status, marital status, and more.
- The size of the credit is determined by how many qualifying children you have; these qualifications also follow strict rules.
- Foster children have special status in the EITC scheme, and they must live with you for the full year to qualify.
Earned Income Tax Credit Eligibility
You must be eligible for, and claim, the federal earned income tax credit on your federal tax return to qualify for Indiana's EITC. Most of the rules for Indiana's credit follow the rules for the federal credit. You must have earned income, either from an employer or from working in your own business, and the income source can't be foreign.
You must also have a valid Social Security number and be a U.S. citizen or a resident alien throughout the entire year. A nonresident alien can qualify for the tax credit if they're married to a U.S. citizen or a resident alien, and if the couple file a joint married return.
Filing a separate married return prevents you from claiming the federal EITC. You can't claim the Indiana credit if you're the qualifying child dependent of another taxpayer, and someone (such as your parent) claims you as a dependent.
You must be between the ages of 25 and 65 to claim the Indiana EITC if you don't have any dependent children. Otherwise, no age limits apply.
Your federal adjusted gross income (AGI) and your modified adjusted gross income (MAGI) must be less than certain limits to qualify you for Indiana's earned income tax credit. The following thresholds apply to the 2021 tax year, the return you'll file in 2022:
- $47,900 if you have two qualifying children
- $42,100 if you have one qualifying child
- $15,900 if you have no qualifying children
Rules for Qualifying Children
The first three rules for qualifying children are the same as for the federal EITC. A qualifying child must be younger than age 19 on the last day of the tax year, or age 24 if they're a full-time student. They also must be younger than you, or younger than both you and your spouse if you're married and are filing a joint return.
Children who are permanently and totally disabled qualify regardless of age.
Qualifying children must have lived with you for more than half the tax year, but time spent away at college or other temporary absences isn't considered living away from home if the child intends to return to your residence.
A qualifying child could be your child, stepchild, grandchild, or great-grandchild. Certain dependents may also count toward your EITC eligibility, such as your sibling, half-sibling, or step-sibling, or a descendant of one of these relatives, such as a niece or nephew. A child who's married cannot have filed a joint return with their spouse unless it was only to claim a tax refund.
A qualifying child cannot also be the qualifying dependent of another taxpayer.
Special Rules for Foster Children
For purposes of the state EITC, Indiana's definition of a foster child includes your sibling or step-sibling, or a descendant of your sibling or step-sibling, if you cared for the child in your home just as you would your own child. A foster child can also be an unrelated child who was placed with you by a state agency, and they must live with you all year.
You might want to check with a tax professional if you're claiming a foster child for purposes of the earned income credit because of these special rules.
The Amount of the Credit
Indiana's credit can't exceed 9% of your federal EITC, and it can be reduced by 9% of any alternative minimum tax you might owe.
Frequently Asked Questions (FAQs)
What is the Earned Income Tax Credit?
Indiana uses the Earned Income Tax Credit (EITC) just like the federal version of the EITC. It helps low-income taxpayers by lowering their tax liability by a set amount each year. Since it's a credit, if there is money leftover after offsetting the tax liability, this amount is given back to the taxpayer as a refund.
How can I claim the Earned Income Tax Credit?
Complete and attach Schedule IN-EIC to your Indiana tax return. A downloadable form is available on the Indiana Department of Revenue website.
Will I be taxed on the money I receive as a refund from the EITC?
No, the credit and any refund you receive will be excluded from your taxable income for the 12 months following.