Tax season officially opened yesterday, January 26, but for millions of working Americans, the real headline isn’t the date—it is the quiet expansion of the Earned Income Tax Credit (EITC). Often called the “working family’s bonus,” the EITC has been adjusted for inflation and tweaked by the recent tax overhaul. Many people disqualify themselves because they assume they earn too much, but the 2025 thresholds might surprise you. If you haven’t looked at the new numbers, you could be leaving thousands on the table.
The Inflation Bump is Real
For the 2025 tax year, which you are filing now in 2026, the maximum EITC has risen significantly due to inflation indexing. Specifically, the max credit is now $8,046 for families with three or more qualifying children. Even for those with two children, the credit tops $7,152. This isn’t “free money”; it’s a refundable credit designed to boost the after‑tax income of low‑ and moderate‑income workers. Furthermore, it is designed to offset the cost of living, which we all know has risen.
The Investment Income Cap Increase
In previous years, if you made a little money on stocks, a side rental, or even a high-yield savings account, you were disqualified from the EITC. The cap was notoriously low. However, for tax year 2025, the cap on investment income has been raised to $11,950. This means you can have a savings account that actually earns interest without losing your tax credit. Consequently, you no longer have to choose between saving for the future and getting your refund.
The Lookback Strategy
While the pandemic-era permanent lookbacks are gone, new provisions may allow for specific adjustments if your income fell due to federally declared disasters. If you lived in a disaster zone in 2025, you might be eligible to use your 2024 income to calculate your EITC if Congress enacted specific relief for your area. Ideally, this results in a larger credit. Since this “lookback” provision depends on specific legislation, you have to manually check if you qualify.
Expanded Eligibility for Married Filing Separately
Historically, filing “Married Filing Separately” killed your EITC eligibility. It was a penalty for having a complicated marriage. Fortunately, recent rule changes allow separated spouses who live apart for the last six months of the year to claim the credit without needing a final divorce decree. They must simply meet specific co-habitation rules with their children. This is a game-changer for single parents currently in the middle of messy separations who previously got $0.
The Gig Worker Nuance
With the new deductions for tip income and overtime introduced in the recent tax bill, your Adjusted Gross Income (AGI) might be lower this year than last year. Since EITC is based on AGI limits, taking these new deductions could lawfully lower your taxable income. Ideally, this might drop you into a more favorable EITC tier. However, keep in mind that the IRS often looks at your total “earned income” for the phase-in portion of the credit, so review the specific calculations carefully.
Don’t Leave It on the Table
The IRS estimates that 20% of eligible taxpayers skip the EITC. With the inflation adjustments, that is a potentially $8,000 mistake. Do not assume you earn too much; instead, run the numbers.
Did you know about the new income limits for the EITC? Let us know if you qualify this year.
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The post The Jan 27 “Tax Kickoff”: 5 Changes to the EITC That Could Boost Your Refund This Year appeared first on Budget and the Bees.
