Intuit Academy Tax Practice Exam

Is the Earned Income Credit refundable?

1. Yes

2. No

3. Only for low-income earners

4. Only for families with children

The correct answer is: Yes

The Earned Income Credit (EIC) is indeed a refundable tax credit, which means that if the credit exceeds the amount of taxes owed, the taxpayer can receive the difference as a refund. This feature is particularly beneficial for low-to-moderate-income earners, as it aims to reduce poverty levels and incentivize work. The EIC is designed to provide financial support to individuals and families who earn income, particularly those with children, though it is not exclusively for those families. Its refundable nature allows taxpayers to benefit even if they have little or no tax liability, meaning they can receive money back from the IRS that can help with necessary expenses. While other options mention specific conditions like income levels or having children, the key defining characteristic of the Earned Income Credit is its refundability. The fact that it is available to a range of eligible taxpayers rather than being limited to specific groups makes the refundable aspect a significant feature of this credit.