Earned Income Credit

how do you get earned income credit

Does the Government Owe You Money?

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 at tax time.

Watch this short video from Legal Aid of Nebraska for an introduction to the EIC:

Can I claim the EIC?

To claim the EIC, you must pass these tests.

Rules for everybody:

  • Your earned income in 2014 must have been less than:
    • $46,997 if you have three or more qualifying children ($52,427 if married filing jointly)
    • $43,756 if you have two qualifying children ($49,2168 if married filing jointly)
    • $38,511 if you have one qualifying child ($43,941 if married filing jointly)
    • $14,590 if you do not have a qualifying child ($20,020 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 $3,350 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 and other types of public benefits (such as SSI and SS 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 2013. "In the United States" means in one of the 50 states or the District of Columbia. Your child 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.

Frequently Asked Questions

How much is the Credit?

The EIC varies based on your adjusted gross and the number of qualifying children. For tax year 2014, the maximum amounts of the EIC are:

  • $496 for a taxpayer with no qualifying child
  • $3,351 for a taxpayer with one qualifying child
  • $5,460 for a taxpayer with two qualifying children
  • $6,143 for a taxpayer with three or more qualifying children

Not sure how much EIC you are eligible for? Use the IRS's EITC Assistant. It's easy!

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. Contact us for help with your audit.

My children live with me, but I've agreed that their 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.

More Resources

File on-line for free

IRS page: Find Out if You Qualify for EITC

More on Special Rules for Separated Parents

Partially revised June 2015

Source: ptla.org

Category: Bank

Similar articles: