Welcome to our guide on California Earned Income Tax Credit (CalEITC) for the tax year 2023! If you’re a California resident, you might be eligible for a significant tax benefit. The California Earned Income Tax Credit (CalEITC) can provide individuals and families with a substantial refund, up to $3,529. This credit is designed to help low to moderate-income earners keep more of what they earn. Understanding how to qualify for and claim the CalEITC can make a big difference in your financial well-being. Let’s delve into the details of this valuable tax credit and how it can benefit you.
What is California earned income tax credit?
The California Earned Income Tax Credit or CalEITC is a refundable tax credit provided by the state of California for low to moderate-income working individuals and families. It was established in 2015 to boost the earnings of working Californians living in poverty and to encourage work. CalEITC works similarly to the federal Earned Income Tax Credit (EITC) in that it offsets a percentage of the federal EITC and supplements the taxpayer’s income.
Some key facts about CalEITC:
- CalEITC ranges from 30-85% of the federal EITC amount depending on income level and filing status.
- It can be claimed on the California state income tax return.
- Taxpayers must have earned income from wages or self-employment to qualify.
- Like federal EITC, it is refundable meaning if the credit amount exceeds the tax owed, the taxpayer receives the difference as a refund.
- It aims to support working families struggling financially and help lift children out of poverty.
- Studies show EITC recipients are more likely to work and less likely to need public assistance programs like welfare and food stamps.
CalEITC provides additional cash back to supplement the federal EITC for low-income working Californians to boost their earnings and help meet basic needs. It has proven effective at reducing poverty and encouraging employment.
Who qualifies for California earned income tax credit
To claim the CalEITC, taxpayers must meet certain eligibility criteria related to income, residency, investment income, and filing status:
- Income: Adjusted gross income (AGI) must be below specific thresholds that vary based on filing status and number of qualifying children. For tax year 2024, the AGI limits range from 30,000−30,900.
- Residency: Must be a resident of California for the entire tax year.
- Investment income: Investment income must be $2,500 or less for the tax year.
- Filing status: Can file as single, head of household, married filing jointly or married filing separately. Qualifying children must meet the federal EITC rules.
- Age: Must be at least 18 years old and under age 65 as of December 31st of the tax year unless disabled or a full-time student.
- Citizenship: Does not have to be a US citizen but must have a valid Social Security Number or Individual Taxpayer Identification Number.
to claim CalEITC one must have earned income within the specified limits, be a California resident for the full year, and meet the age, filing status, and citizenship criteria.
How much is California’s earned income tax credit?
The amount of California earned income tax credit a taxpayer receives depends on their filing status, number of qualifying children, and earned income/AGI for the tax year. Here are the credit percentages and income limits for the tax year 2024:
- Taxpayers with no qualifying children: Credit is 35% of the federal EITC amount. The income limit is $30,000 for single/joint filers.
- Taxpayers with 1 qualifying child: Credit is 75% of the federal EITC amount. The income limit is $26,200 for head of household and $21,150 for single filers.
- Taxpayers with 2 or more qualifying children: Credit is 85% of the federal EITC amount. The income limit is $30,900 26,200 for head of household and $21,150 for single filers.
So for example, a single filer with one child and an AGI of 1,000 which is 75% of their federal EITC amount. The credit phases out as income rises above the specified thresholds.
How to calculate California earned income tax credit
To calculate the exact California earned income tax credit amount, taxpayers need to first determine their federal EITC using IRS Form 1040 or 1040-SR. Then they follow these steps:
- Determine filing status – single, head of household, married filing jointly etc.
- Count the number of qualifying children.
- Refer to the CalEITC table to find the applicable credit percentage – 35%, 75% or 85%.
- Multiply the federal EITC amount by the credit percentage.
- The result is the CalEITC amount to claim on California Form 540.
For example, if a single filer’s federal EITC was 3,000 3,000 x 75% = $2,250. This credit would then reduce the amount of California state tax owed or increase their tax refund.
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