Taxpayers who were employed during the tax year and meet certain qualifying criteria, may be eligible to claim the federal Earned Income Credit (EIC). The credit is refundable even if the taxpayer had no tax withheld or paid no estimated taxes during the year.
The credit was designed to help low income taxpayers and encourage them to keep working as opposed to going on welfare. The amount of the credit and primary qualification is based on the amount of earned income. The income limits are as follows: (based on 2009 tax table)
• Taxpayer(s) with three or more qualifying children and earned income less than $43,279 ($48,279 if filing a joint return).
• Taxpayer(s) with two qualifying children and earned income less than $40,295 ($45,295 if filing a joint return).
• Taxpayer(s) with one qualifying child and earned income less than $40,295 ($45,295 if filing a joint return).
• Taxpayer(s) with no qualifying child and earned income less than $12,440 ($18,440 if filing a joint return).
In addition, taxpayer(s) may not have more than $3,100 of investment income to qualify.
Earned Income includes any wages paid by an employer as well as self employment income and gross income received as a statutory employee. For purposes of the EIC, military personnel can elect to include non-taxable combat pay as earned income. The more earned income one has, so long as the maximum limit is not exceeded, the larger the EIC payment will be.
Taxpayer(s) with qualifying children must verify that all children claimed for EIC purposes meet the relationship, age and residency tests.
RELATIONSHIP TEST:
Each qualifying child must be the taxpayer(s):
• Son, Daughter, stepchild, foster child, or grandchild, or
• Brother, Sister, Half Brother, Half Sister, stepbrother, stepsister, or any descendent there of (ie. niece or nephew).
AGE TEST:
A qualifying child must be either:
• Under the age of 19 at the end of the tax year and younger than taxpayer or spouse.
• Under age 24 and the end of the tax year and a student younger than taxpayer or spouse.
• permanently and totally disabled at any time during the tax year regardless of age.
RESIDENCY TEST:
A qualifying child must live with the Tax Payer in the United State or possession thereof for more than half the year. The taxpayers home would be anywhere they live including a homeless shelter. One exception would be a qualifying child who is away at school for part of the year.
These are the basic qualification criteria for the EIC, but as always there are exceptions to the rule. For more detailed information you can order a copy of IRS publication 596, Earned Income Credit either by calling 1 – 800 – TAX – FORM (1-800-829-3676, or from the IRS web site at WWW.irs.gov. To claim the credit you will need Schedule EIC.
The IRS will figure your EIC for you, but it is up to you to determine if you are eligible. If you want the IRS to figure the credit for you put “EIC” on the dotted line next to 1040 line 64a, or left of the entry space for line 41a of form 1040A, or in the space to the left of line 9a on form 1040EZ.