Earned Income Tax Credit

What is the EIC?

The earned income credit (EITC or EIC) is a refundable tax credit for lower-income workers. The credit can decrease or get rid of the taxes you owe. Also, the EIC is a "refundable" credit. This means that if your credit is more than the taxes you owe, the IRS pays you money - rather than you paying them money.

Can I claim the EIC?

To claim the EIC, you must pass these tests.

Rules for everybody:

 Your earned income in 2011 must have been less than:

 

  • $43,998 if you have three or more qualifying children ($49,078 if married filing jointly)
  • $40,964 if you have two qualifying children ($46,044 if married filing jointly)
  • $36,052 if you have one qualifying child ($41,132 if married filing jointly)
  • $13,660 if you do not have a qualifying child ($18,740 if married filing jointly)
  • You must have a valid Social Security number that allows you to work.
  • Your filing status cannot be "married filing separately."
  • You must be a U.S. citizen or resident alien all year.
  • You cannot file form 2555 or form 2555-EZ (relating to foreign earned income).
  • Your investment income must be $3,150 or less.
  • You must have earned income.* 

 

*Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you perform, including income from self-employment. Child support, TANF, and disability benefits are not earned income.

Rules if you have a qualifying child:

 Your child must meet the age, relationship, and residency tests (see below).

Your qualifying child cannot be used by more than one person to claim the EIC. However, you can claim the EIC even if another person can claim the child as a dependent. You cannot be a qualifying child of another person.

Qualifying Child

Relationship Test: Your child must be your son, daughter, adopted child, grandchild, stepchild, sibling or stepsibling (or their descendants), or a foster child placed in your home by an authorized placement agency. The child must live in your home for more than half of the year.

Age Test: Your child must be

Under age 19 at the end of the year, or

 A full-time student under age 24 at the end of the year, or

 Permanently and totally disabled at any time during the year, regardless of age. 

 

Residency Test: Your child must have lived with you in the United States for more than half of 2011. "In the United States" means in one of the 50 states or the District of Columbia. If your child was born before December 31, 2011, he or she must have a valid Social Security number.

Rules if you do not have a qualifying child:

  • You must be a least age 25 and under age 65.
  • You cannot be the dependent of another person.
  • You cannot be a qualifying child of another person.
  • You must have lived in the United States more than half of the year.

How much is the Credit?

The EIC varies based on your adjusted gross and the number of qualifying children. For tax year 2011, the maximum amounts of the EIC are:

$464 for a taxpayer with no qualifying child

$3,094 for a taxpayer with one qualifying child

$5,112 for a taxpayer with two qualifying children

$5,751 for a taxpayer with three or more qualifying children

 

Not sure how much EIC you are eligible for? Get an estimate of the amount you could get from the Earned Income Credit now! It's easy.

 

Frequently Asked Questions

My children live with me, but their other parent claims them for the EIC. The person who did my taxes says that I can't claim the EIC. Is this true?

No, it is not true. You can and should claim the EIC. Only the parent who has "primary residence" of the children may claim them as qualifying children for EIC eligibility. This is true even if your ex-spouse pays child support and claims the children as dependents. Claiming the EIC under these conditions will lead to an audit of your tax return, which will give you the chance to prove your eligibility. 

 

My children live with me, but I've agreed that there other parent can claim the EIC every other year. Is this a problem?

Yes. Only the parent with whom the children live for more than one-half the year may claim the EIC for those children. Federal law prohibits parents from "taking turns" claiming the EIC unless the child actually changes residence each year. When a non-custodial parent claims the EIC (for household with children), he or she runs the risk of severe penalties as well as the certainty of having to pay back all EIC amounts improperly received. A custodial parent who assists in this violation of the tax code also risks exposure to IRS penalties.

The simplest way of approaching this is to ask, "With whom does the child live for more than half the year?" Only that person, if otherwise eligible, can claim the EIC for household with children.

 

 

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