While high-earning taxpayers are phased out of these credits, they are highly relevant for children or extended family members establishing careers, or for low-wage employees in a business.
Earned Income Tax Credit (EITC). Governed by IRC §32, the EITC is a refundable credit targeting low- to moderate-income earners. The credit operates on a sliding scale across three phases: a phase-in where the credit grows with earned income, a flat plateau at maximum credit, and a phase-out as income rises.
Filing status restrictions apply. Married couples must file jointly to claim the credit, except under the separated-spouse exception of IRC §7703(b), which requires filing as Head of Household, paying over half of home maintenance costs, having a spouse absent for the last six months of the year, and maintaining the primary home of a qualifying child.
EITC claimants must have investment income below $12,200 (for 2026), possess valid Social Security numbers for all individuals claimed, and cannot claim the foreign earned income exclusion on Form 2555.
Child Tax Credit (CTC). Under IRC §24, as amended by the OBBBA, taxpayers can claim a credit of up to $2,200 per qualifying child under age 17. The credit phases out at a rate of $50 per $1,000 of income exceeding $200,000 for single filers or $400,000 for married couples filing jointly.
Up to $1,700 of the credit is refundable as the Additional Child Tax Credit (ACTC) for taxpayers with earned income exceeding $2,500, calculated at 15% of earned income above that threshold.
For example, a married couple filing jointly with two qualifying children and $50,000 of earned income in 2026 has a total CTC of $4,400. If their pre-credit tax liability is $1,500, they use $1,500 of the credit to offset their tax liability. The remaining $2,900 is evaluated under the ACTC rules. Since their earned income exceeds the $2,500 threshold, their potential ACTC is calculated as . However, the ACTC is capped at $1,700 per child ($3,400 total), so the couple receives the full remaining balance of $2,900 as a refund.
Under the PATH Act of 2015, the IRS is statutorily required to hold refunds for returns claiming the EITC or ACTC until February 15 to verify income and prevent fraud.