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Earned Income Tax Credit

Refundable Tax Credit for Low-Income Workers

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The earned income credit is a refundable tax credit designed for lower income working families and individuals. The amount of the credit varies depending on your level of income and how many dependents you support. The tax credit can even generate a tax refund larger than the amount of tax paid in through withholding. For the years 2009 through 2017, the Earned Income Credit is temporarily increased for working families with three or more dependents. Previously the earned income credit maxed out at two dependents. The earned income credit will revert back to maxing out with two dependents starting in the year 2018.

The easiest way to find out if you qualify for the earned income credit is to use an application found on the IRS Web site called the EITC Assistant. This applet will help you determine if you qualify for the Earned Income Credit. There are applets for each tax year, so be sure to click on the appropriate year.

More quick links to the IRS Web site:

To be eligible for the earned income credit, both your earned income and adjusted gross income needs to be within certain ranges. The amount of the tax credit varies based on your earned income and how many qualifying children you are supporting in your household.

Earned Income Tax Credit Amounts for Year 2014

The maximum earned income credit for 2014 is:
  • $6,143 with three or more qualifying children;
  • $5,460 with two qualifying children;
  • $3,305 with one qualifying child; and
  • $496 with no qualifying children.

Earned Income Tax Credit Amounts for Year 2013

The maximum earned income credit for 2013 is:
  • $6,044 with three or more qualifying children;
  • $5,372 with two qualifying children;
  • $3,250 with one qualifying child; and
  • $487 with no qualifying children.

Earned Income Tax Credit Amounts for Year 2012

The maximum earned income credit for 2012 is:
  • $5,891 with three or more qualifying children;
  • $5,236 with two qualifying children;
  • $3,169 with one qualifying child; and
  • $475 with no qualifying children.

Earned Income Tax Credit Amounts for Year 2011

The maximum earned income credit for 2011 is:
  • $5,751 with three or more qualifying children;
  • $5,112 with two qualifying children;
  • $3,094 with one qualifying child; and
  • $464 with no qualifying children.

Earned Income Tax Credit Amounts for Year 2010

The maximum earned income credit for 2010 is:
  • $5,666 with three or more qualifying children;
  • $5,036 with two qualifying children;
  • $3,050 with one qualifying child;
  • $457 with no qualifying children;

Earned Income & Investment Income Limitations

Earned income means wages and net profits from self-employment. Wages are reported on Form W-2. Self-employment is generally reported on Schedule C or on Schedule F for self-employed farmers.

To be eligible for EIC, both earned income and adjusted gross income (AGI) must each be less than the following amounts for 2014:

  • $46,997 ($52,427 married filing jointly) with 3 or more qualifying children,
  • $43,756 ($49,186 married filing jointly) with 2 qualifying children,
  • $38,511 ($43,941 married filing jointly) with 1 qualifying child, or
  • $14,590 ($20,020 married filing jointly) with no qualifying children.

For 2013, earned income and AGI must be less than:

  • $46,227 ($51,567 married filing jointly) with 3 or more qualifying children,
  • $43,038 ($48,378 married filing jointly) with 2 qualifying children,
  • $37,870 ($43,210 married filing jointly) with 1 qualifying child, or
  • $14,340 ($19,680 married filing jointly) with no qualifying children.

For 2012, earned income and AGI must be less than:

  • $45,060 ($50,270 married filing jointly) with 3 or more qualifying children
  • $41,952 ($47,162 married filing jointly) with 2 qualifying children;
  • $36,920 ($42,130 married filing jointly) with 1 qualifying child; or
  • $13,980 ($19,190 married filing jointly) with no qualifying children.
For 2011, earned income and AGI must be less than:
  • $43,998 ($49,078 married filing jointly) with 3 or more qualifying children
  • $40,964 ($46,044 married filing jointly) with 2 qualifying children;
  • $36,052 ($41,132 married filing jointly) with 1 qualifying child; or
  • $13,660 ($18,740 married filing jointly) with no qualifying children.
For 2010, earned income and AGI must be less than:
  • $43,352 ($48,362 married filing jointly) with 3 or more qualifying children
  • $40,363 ($45,373 married filing jointly) with 2 qualifying children;
  • $35,535 ($40,545 married filing jointly) with 1 qualifying child; or
  • $13,460 ($18,470 married filing jointly) with no qualifying children.
Investment income must be $3,350 or less for the year 2014, $3,300 for 2013, less than $3,200 for the year 2012, or $3,150 or less for the year 2011. Investment income includes interest, dividends, capital gains, and royalties.

Who is a Qualifying Child for EIC?

The rules for qualifying children for the purpose of claiming the earned income credit are slightly different than the rules for dependents. Thus it may be possible that a child qualifies as your dependent, but not for EIC; or might qualify you for EIC even though the non-custodial parent claims the dependent. Here are the qualifying children rules for the earned income credit:
  • Relationship test,
  • Age test,
  • Residency test, and
  • Joint return test.
To claim a qualifying child or children you must attach Schedule EIC to your Form 1040.

Relationship Test: The child must be related to you by birth, marriage, adoption, or foster arrangement. The child can be your son, daughter, grandchild, niece, nephew, brother, sister, or eligible foster child. Adopted children are treated the same as children by birth. Foster children must be placed in your care by an authorized placement agency.

Age Test: The child must be age 18 or younger at the end of the year, or the child must be age 23 or younger and a full-time student. If you care for a person who is totally and permanently disabled, you can claim this person for the Earned Income Credit regardless of the person's age.

Residency Test: The child must live with you for more than half the year and must live with you in the United States. More than half a year means six months and a day. The residency test means that two people are not able to claim the same child for the Earned Income Credit.

Joint return test: the child you claim for the earned income credit cannot file a joint return with his or her spouse. One exception is if their joint return is solely a claim for refund and the couple does not take any deductions or credits on their jointly-filed tax return.

Additionally, your child must have a valid Social Security Number. If your child does not have a valid SSN, then you cannot claim the child for the Earned Income Credit.

Finally, you cannot claim the earned income tax credit if your filing status is Married Filing Separately. However, if you and your spouse are separated and your spouse did not live with you at any time during the last 6 months of the year, you can file as Head of Household and claim the Earned Income Credit.

EIC Requirements for All Taxpayers

To be eligible for the earned income credit, taxpayers need to meet the follow criteria:
  • Must have valid Social Security Numbers;
  • Must be U.S. citizen or resident alien for the entire year;
  • Cannot use the the married filing separately filing status;
  • You and your spouse (if married) cannot be claimed as a qualifying child by someone else.
  • Cannot claim the foreign earned income exclusion (which relates to wages earned while living abroad)
  • You and your spouse (if married) are between the ages of 25 and 64.

Earned Income Credits available from State and Local Governments

Several state and local governments offer their own version of an earned income credit. Some of these are based on the federal earned income amounts, but other states have their own calculations. More details at: State and local earned income credits.

 

Advance Earned Income Credit

2010 was the last year for the taxpayers to receive an advance of their expected earned income credit as part of their regular paycheck. This program was eliminated as part of HR 1586.

 

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