Earned Income Tax Credit (EITC)

Here is an overview:

Here is further information from the IRS website:

Basic Qualifications

All Workers Claiming the EITC Must:

• Have a valid Social Security number,
• Not file as "married filing separate,"
• Not file Form 2555 or Form 2555-EZ (related to Foreign Earned Income),
• Meet the investment income limitation ($3,100 for 2010),
• Have earned income,
• Not be the qualifying child of another person,
• Generally, be a U.S. citizen or resident alien for the entire year.

To File With a "Qualifying Child", the Child Must Pass All of the Following Tests:

• Relationship
  • A son or daughter (including an adopted child or child placed for adoption)
  • Stepchild
  • Foster child placed by an authorized placement agency or court

  • Brother, sister, stepbrother, stepsister, half brother, half sister or a descendant of any of them

• Age, at the end of the filing year, the child was:
  • Younger than the worker (or the worker's spouse if married filing jointly) and 
    • younger than 19,
    • or, younger than 24 and a full-time student
  • Any age if permanently and totally disabled
• Residency
  • Child must live with the claimant in the United States for more than half of the year.

• Joint Return

  • The child can not have filed a joint return, unless the child and the child's spouse did not have a filing requirement and filed only to claim a refund.

Note: A qualifying child cannot be used by more than one person. If a child qualifies for more than one person and one of the persons is a parent or parents, the non-parent can claim the child only if their AGI is higher than the parent(s). If the child qualifies another relative and the parent AGI rules do not apply, the taxpayers choose. If more than one person claims the same child, IRS applies the tie-breaker rules. Read more about the tie-breaker rules here.

 Workers Without a Qualifying Child Must:

• Have lived in the United States for more than half of the tax year,
• Be at least age 25 but not age 65 or older,
• Cannot qualify as the dependent of another person.

Here is some historical information put out by the IRS a few years ago. 

Fact sheet on the earned income tax credit details changes for the 2009 tax year

IR 2010-14, Fact Sheet 2010-12, January 2010

In an Information Release and Fact Sheet, IRS reminds taxpayers about the availability of the earned income tax credit (EITC)—a tax credit for people who work but do not earn high incomes, which helps them by either lowering their taxes or giving them a refund. IRS also explains a number of changes that apply to the EITC for the 2009 tax year.

Background. Certain low-income workers are allowed a refundable EIC. An eligible individual is allowed a credit against his or her tax for the tax year in an amount equal to the credit percentage of so much of the taxpayer's earned income for the tax year as doesn't exceed the earned income amount. The credit percentage and the earned income amount, and therefore the maximum EIC, depend on the number of qualifying children that the taxpayer has. The statutory earned income amounts are increased annually for inflation. Phaseout amounts limit the amount of the credit. The credit isn't available to individuals with disqualified income (investment income) that exceeds $3,100 (for 2010). (Code Sec. 32)

IR 2010-14, notes that historically, one in four eligible taxpayers fails to claim the EITC.

NOTE:  As the Fact Sheet explains, the EITC has no effect on certain welfare benefits. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments. Unemployment benefits are not considered earned income, but must be included in income calculations. In addition, many taxpayers who qualify for EITC may also be eligible for free tax preparation, such as IRS Free File, and electronic filing by participating tax professionals and volunteers.

New rules for 2009 tax year. The Fact Sheet reminds taxpayers that for the 2009 tax year there are new additional EITC and income thresholds for a third qualifying child, as well as changes to the uniform definition of a child. For tax years 2009 and 2010, the American Recovery and Reinvestment Act (ARRA) created a new category three or more children, which will provide larger credits to larger families. The change in the uniform definition of a child adds two new rules to the definition of who is a “qualifying child.” The child must:: (1) be younger than the person claiming the child, unless the child is permanently and totally disabled; and (2) not have filed a joint return other than to claim a refund.

Also new for 2009, if a qualifying child can be claimed by both a parent and another person, the other person must have an adjusted gross income (AGI) higher than the parent in order to claim the child for EITC purposes.

For the 2009 tax year, a taxpayer's earned income and (AGI) must each be less than:

... $43,279 ($48,279) married filing jointly) with three or more qualifying children

... $40,295 ($45,295 married filing jointly) with two qualifying children

... $35,463 ($40,463 married filing jointly) with one qualifying child

... $13,440 ($18,440 married filing jointly) with no qualifying children

For the 2009 tax year, the maximum credit amounts are:

... $5,657 with three or more qualifying children

... $5,028 with two qualifying children

... $3,043 with one qualifying child

... $457 with no qualifying children

Qualification for the EITC. To qualify, the Fact Sheet explains, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a U.S. individual income tax return. Other requirements provide that a taxpayer:

... must have earned income.

... must have a valid Social Security number for himself, his spouse (if married filing jointly) and his qualifying child.

... must not have investment income in excess of $3,100.

... have a filing status that's not “married filing separately.”

... generally, be a U.S. citizen or resident alien all year.

... not be a qualifying child of another person.

... not file Form 2555 or Form 2555-EZ (related to foreign earned income).

... have income that exceeds certain limitations.

If a taxpayer claims a child, he or she must meet three eligibility tests:

·       Residency test. The child must have lived with the taxpayer in the U.S. for more than half of 2009.

·       Relationship test. The child must be the taxpayer's son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them. A taxpayer's child includes:

... A foster child who was placed with you by an authorized placement agency, or by judgment, decree, or other order of any court of competent jurisdiction; or

... A legally adopted child or a child lawfully placed with you for legal adoption.

·       Age test. At the end of 2009, the child must have been under age 19, a full-time student under age 24, younger than the EITC-claiming taxpayer or any age if permanently and totally disabled at anytime during 2009.

A qualifying child cannot be used by more than one person to claim EITC. If a child meets the rules to be a qualifying child of more than one person, only one person can treat that child as a qualifying child and claim EITC.

If a taxpayer doesn't have a child, he must meet three additional tests:

... At the end of 2009, you must have been at least age 25, but under age 65.

... The taxpayer can't qualify as the dependent of another person.

... The taxpayer must have lived in the U.S. for more than half of 2009.

Combat Zone pay. The Fact Sheet also explains that members of the military have the option of including their tax exempt combat zone pay when computing their earned income for EITC. The combat pay remains exempt for federal taxes. However, taxpayers must either include all of the combat pay or none of it. If the inclusion of combat pay would push a taxpayer's AGI above the EITC income limit, taxpayers should leave it out of their EITC calculations. If, however, the inclusion of combat pay would allow a taxpayer to obtain a higher refund, then it should be included.

The Fact Sheet may be viewed on the IRS website at

http://www.irs.gov/newsroom/article/0,,id=218830,00.html.