Who can claim the credit?
What if I was
denied the EITC last year?
Who is a qualifying child?
Who is an eligible foster child?
What is
"earned income"?
How do I figure my credit?
How can I get EITC in my paycheck?
What if
I am prohibited from claiming the EITC for a period of years?
What if there is more than one taxpayer in the household who
could claim the same child for EITC?
When parents live
apart, who can claim the EITC for their child(ren)?
What
is the tie-breaker rule?
What additional rules are there
for workers without children?
Where can I get more
information?
Q1. What is the Earned Income Tax Credit (EITC)?
A1. The
earned income credit (EITC) is a tax credit for certain people who work and have
low wages. A tax credit usually means more money in your pocket. It reduces the
amount of tax you owe. The EITC may also give you a refund.
Q2. Who can claim the credit?
A2. To claim
the EITC on your tax return, you must meet all of the following rules:
-
Must have a valid
Social Security Number
-
You must have
earned income
from employment or from self-employment.
-
Your filing status cannot be married, filing separately.
-
You must be a U.S. citizen or resident alien all year, or a nonresident
alien married to a U.S. citizen or resident alien and filing a joint return.
-
You
cannot
be a qualifying child of another person.
-
If you do not have a qualifying child, you must:
o
be age 25 but under 65 at the end of the year,
o
live in the United States for more than half the year, and
o
not qualify as a dependent of another person
-
Cannot file Form 2555 or 2555-EZ (related to
foreign earn income)
-
You must meet these
EITC Thresholds and Limitations
Q3. What if I was denied the EITC last year?
A3. If your EITC for any year after 1996 was denied or reduced for any reason
other than a math or clerical error, you must attach a completed
Form 8862,
Information to Claim Earned Income Credit After Disallowance,
to your next tax return to claim the EITC. You must also qualify to claim the
EIC by meeting all the rules described in Publication 596.
However, do not file Form 8862 if either (1) or (2) below is true.
1. After your EITC was reduced or disallowed in the earlier year:
-
You filed Form 8862 (or other documents) and your EITC was then allowed, and
-
Your EITC has not been reduced or disallowed again for any reason other than a
math or clerical error.
2. You are taking the EITC without a qualifying child and the only reason your
EITC was reduced or disallowed in the earlier year was because the IRS
determined that a child listed on Schedule EITC was not your qualifying child.
Also, do not file Form 8862 or take the EITC for:
-
2 years after there was a final determination that your EITC was reduced or
disallowed due
to reckless or intentional disregard
of the EITC rules, or
-
10 years after there was a final determination that your EITC was reduced or
disallowed due to fraud.
Q4. Who is a qualifying child?
A4.
Your child is a qualifying child if your child meets three tests. The three
tests are:
1.
Relationship
2.
Age
3.
Residency
Relationship
To be your qualifying child, a child must be your:
-
Son, daughter, stepchild, eligible foster child, or a descendant
(for example, your grandchild) of any of them, or
-
Brother, sister, half brother, half sister, stepbrother, stepsister,
or a descendant of any of them (for example, your niece or nephew).
Definitions to clarify the relationship test:
Adopted child - An adopted child is
always treated as your own child. The term "adopted child" includes a child who
was lawfully placed with you for legal adoption.
Eligible Foster Child - A person is your
eligible foster child if the child is placed with you by an authorized placement
agency or by judgment, decree, or other order of any court of competent
jurisdiction.
Age
Your child must be:
1.
Under age 19 at the end of the year,
2.
A full-time student under age 24 at the end of the year, or
3.
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
the year.
See IRS Publications
596
and
501
for more details
Q5. Who is an eligible foster child?
A5. An eligible foster child is an individual who is placed with you by an
authorized placement agency or by judgment, decree, or other order of any court
of competent jurisdiction.
A6. Earned income includes all the taxable income and wages you get from
working.
There are two ways to get earned income:
1.
You work for someone who pays you, or;
2.
You work in a business you own.
Taxable earned income includes:
-
Wages, salaries, and tips;
-
Union strike benefits;
-
Long-term disability benefits received prior to minimum retirement age;
-
Net earnings from self-employment.
Combat Pay
Nontaxable combat pay election. You can elect to have your nontaxable combat pay
included in earned income for the earned income credit. The amount of your
nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q.
Q7. How do I figure my credit?
A7. Once you know that you qualify for the EITC, you need to know how to figure
the amount of the credit. You have two choices of how to figure the credit:
1.
Have the IRS figure the credit for you. If you would like the IRS to do this,
see Publication 596, or
2.
Figure the credit yourself. To do this you must use the Earned Income Credit
Worksheet (EIC Worksheet) in the instruction booklet for Form 1040, Form 1040A,
or Form 1040EZ, and the Earned Income Credit (EIC) Table in the instruction
booklet, or use the
EITC Assistant Tool online.
For more information, see Chapter 4, Figuring and Claiming the EITC, in Publication 596.
Q8. How can I get EITC in my paycheck?
A8. You may prefer to get some of next year's EITC throughout the year,
rather than wait and get EITC after you file your tax return. To get EITC,
complete
Form W-5 and
give the lower part of the form to your employer. Keep the top part for your
records. For more information, see
Advance EITC Questions and Answers.
Q9. What if I am prohibited from claiming the EITC for a period of years?
A9. If your EITC for any year after 1996 was denied and it was determined
that your error was due to reckless or intentional disregard of the EITC rules,
then you cannot claim the EITC for the next 2 years. If your error was due to
fraud, then you cannot claim the EITC for the next 10 years. The date on which
your EITC was denied and the date on which you file your tax return affects the
years for which you are prohibited from claiming the EITC.
A10. Two people cannot claim the same child for the EITC. Some households -- such as three-generation households -- have more than one adult who could be eligible to claim the same child and who file taxes separately. In these cases, the eligible adults can decide who will claim each qualifying child for EITC. If the eligible adults cannot agree, the tie-breaker rule applies (see below).
Q11. When parents live apart, who can claim the EITC for
their child(ren)?
A11. Only one parent can claim the EITC for a given child. The parent with whom the child lived for more than half the year is entitled to file for the EITC, even if the other parent claims the child as a dependent on his or her tax return. If both parents lived with the child for more than six months, the parents can decide who will claim each qualifying child for the EITC. If the parents cannot agree, the tie-breaker rule applies (see below).
Q12. What is the Tie-Breaker Rule?
A12. The tie-breaker rule determines which adult may claim the EITC, if there is more than one adult who meets the eligibility criteria and the eligible adults are unable to agree which of them should claim the credit. According to the tie-breaker rule, a parent has priority over a non-parent. If there are two eligible parents, the parent with whom the child lived for the longest period of the year has priority. If the child lived with both parents for the same amount of time, the parent with the highest adjusted gross income (AGI) has priority. Finally, if none of the eligible persons is the child's parent, the person with the highest AGI has priority.
Q13. What additional rules are there for workers without
children?
A13. A worker without qualifying children must be age 25-64 to claim the EIC. He/she cannot be the dependent or the 'qualifying child' of someone else.
Q14. Where can I get additional information?
A14. Please visit www.irs.gov or a local preparation site.
