Fact Sheet: Earned Income Credit
What it is: A refundable credit worth up to $3888 to reduce your taxes. Even if you don’t owe any taxes, you may still be able to get money from the IRS if you file a tax return and you have income from working.
How you get it: Make sure you qualify for the credit. File a federal form 1040EZ, 1040A or 1040. Look up the amount of the credit you are entitled to receive based upon your earned income and fill in the amount on your tax return. If you are using form 1040 or 1040A make sure you attach Schedule “EIC” to the tax return. Follow the instructions and deduct the credit from your taxes.
If you think you will qualify for the credit next year, you can get a portion of the credit with each paycheck while you are working (an “advance earned income credit”). Talk to your employer about filling out a form W-5 to get the credit while you are working. If you were receiving advance earned income credit this past year, you must file either a Form 1040A or a Form 1040, and not a Form 1040EZ. At the end of January, when your employer gives you your W-2, look at box “9” to see if you received an advance earned income credit.
Rules: 1) You must have a valid Social Security Number.
2) You must have income from working. If you did not work during the year you will not qualify for this credit. If you earned money while in jail or prison, that money does not count towards earned income. If you received scholarship money but did not get a W-2 for it, that money is also not counted toward earned income. Also, you cannot claim this credit if you have income from a foreign country (if you have to file Form 2555 or form 2555EZ)
3) If you have no children, and your total income (earned income and “modified adjusted gross income”) is more than $10,380, you cannot get this credit. If you have 1 child who is your son, daughter, grandchild, or foster child (the “relationship test”) that lived with you more than half the year in the United States (“the residency test”), and who is under age 19 (or age 24 if he or she is a full-time student—“the age test”), then you can earn up to $27,413 and still get the credit. If you have two or more such children that lived with you, and who are under age 19 (or age 24 if a student), then you may earn up to $31,152 and still claim the credit. If the child you are claiming is married, you must be able to claim him or her as a dependent. If another taxpayer could claim the child is his or hers, then only the taxpayer with the higher income may claim the child. If the higher income taxpayer earned too much money, then neither taxpayer can claim the child.
4) You cannot take the credit if you are the child of a taxpayer who is taking the credit.
5) If you are married, you and your spouse must file a joint return.
6) You must have lived in the United States for more than one-half the past year. Also, you must be authorized to work in the United States in order to claim the credit.
7) You must be at least 25 years old, but not more than 65 years old.
8) You cannot have unearned income (bank interest, etc.) of more than $2400 for the past calendar year no matter how low your income from working was.
9) If you claim the credit when you were not supposed to claim it, you may not be eligible to claim it again for ten (10) years. If you previously claimed the earned income credit and it was reduced or disallowed, you will need to file a form 8862 to try to claim it now.
10) If you have own a rental property, or if you report a capital loss or a loss from running a business; or if you have reported your child’s income on your tax return, check IRS publication 596 too make sure you qualify for this credit.
No qualifying children $10,200 $10,380
One qualifying child $26,928 $27,413
Two or more qualifying children $30,580 $31,152
EARNED INCOME CREDIT CALCULATION
SHEET
(1040 and 1040A filers with a qualifying child for Tax Year 2000 Only)
Notes: If you are married, you may not use the married, filing separately status and claim this credit. You may not take this credit if you file Form 2555 or 2555EZ (foreign earned income). Nonresident aliens may only take this credit if their filing status is married filing jointly.
1. Is the amount on Form 1040, line 34 or Form 1040A, line 20 less than $31,152.00 ($10,380.00 if you have no qualifying children)?
______ Yes _______ No (STOP. The credit cannot be claimed).
(continue)
2. Do you, and your spouse, if you are filing a joint return have a social security number that allows you to work in the United States)?
______ Yes _______ No (STOP. The credit cannot be claimed)
(continue) (Print “No” to the right of the word “below” on line 8b)
3. Can you, or your spouse (if a joint return is being filed), be claimed as a dependent on someone else’s year 2000 tax return?)
_______ Yes _______ No
(STOP. The (continue)
credit cannot
be claimed)
4. Is your investment income from tax year 2000 more than $2,400.00?
To determine total investment income add the following amounts:
Form 1040, or 1040A: Line 8a:
Line 8b:
Line 9:
Form 1040: Line 13
or or
Form 1040A: Line 10:
TOTAL Investment
Income:
_______ Yes _______ No
(STOP. The (continue)
credit cannot
be claimed)
5. Are you filing Form 2555 or Form 2555EZ (foreign earned income)?
_______ Yes _______ No
(STOP. The (continue)
credit cannot
be claimed)
6. Is your filing status married, filing separately?
_______ Yes _______ No
(STOP. The (continue)
credit cannot
be claimed)
7. Are you a U.S. citizen or resident alien for all of 2000?
______ Yes
(continue)
No. STOP.
You cannot take the credit, unless you are married to a U.S. citizen or resident alien all year, AND you agree to be treated as a resident for all of 2000 by filing a joint return. (By agreeing to this, you and your spouse will be taxed on your worldwide income. You will not be able to claim any tax treaty benefits as a resident of a foreign country during a tax year in which the choice is in effect.) If you satisfy these conditions, continue.
8. Could you, or your spouse, if you are filing a joint return, be a qualifying child[1] of another person in 2000 for the EIC?
_______ Yes _______ No
(STOP. You cannot (continue)
take the credit)
9. Was your EIC reduced or disallowed for any reason other than a math error for 1997, 1998, or 1999 tax years?
_______ Yes ________ No (Go to 11, below)
(Continue. Your EIC may
be disallowed, or you may
need to file Form 8862)
10. Did you file Form 8862, and was your EIC then allowed?
_______ Yes ________ No (Continue)
(Go to 11, below)
11. Has your EIC been reduced or disallowed a second time for any reason other than a math or clerical error?
_______ Yes No (Go to 11, below)
(Continue)
12. Was your EIC reduced or disallowed for reckless or intentional disregard of EIC rules, or for fraud?
_______ Yes No (Complete and file Form 8862, and continue)
(STOP. You may
not claim the EIC.)
13. Are you filing Schedule E?
Yes No (continue)
(See Pub 596)
14. Are you claiming a business loss, capital loss, or farm loss? (Form 1040, lines 12, 13, or 18)?
Yes No (continue)
(See Pub 596)
15. Are you reporting income or a loss from the rental of personal property not used in a trade or business?
Yes No (continue)
(See Pub 596)
16. Did you, or your spouse, if filing a joint return, receive a distribution from a pension, annuity, or IRA that is not fully taxable?
Yes No (continue)
(See Pub 596)
17. Are you reporting a child’s income on your 1040 tax return? (Form 1040, line 41, from Form 8814)?
Yes No (continue)
(See Pub 596)
18. Are you reporting anything other than 0 as Alternative Minimum Tax (Form 1040, line 41; or any AMT included on Form 1040A, line 26)?
Yes No (continue)
(See Pub 596)
19. How many “qualifying child(ren)” lived with you in 2000 (see below, or footnote 1 above for definition of “qualifying child”)?
For each “qualifying child,” the following tests must be satisfied:
A. Relationship Test: Son, daughter, grandson, grandchild, stepchild, or eligible foster child (foster child must have lived with you the whole year, and be a relative, or placed in your home by an authorized agency), and not married (see Pub 596, p. 11 for limited special exceptions to the not married requirement);
B. Age Test: Under 19 at the end of 2000, or if a full-time student, under age 24, at the end of 2000, or permanently and totally disabled.
C. Residency Test: The child must have lived with you in the U.S. for more than half of 2000 (the entire year if a foster child).
1 or more qualifying child: continue to 20.
0: (No qualifying children). Answer the following questions:
A. Could you or your spouse be a qualifying child of another taxpayer?
Yes
(STOP. You cannot take the credit. Write “No” to the right of line 60a (Form 1040; or line 38a, Form 1040A)
No (Continue)
B. Are you at least 25 years old, but under age 65, at the end of 2000?
Yes No (STOP. You cannot take the credit)
(continue) Write “No” to the right of line 60a (Form
1040,;or line 38a, Form 1040A)
C. Could you or your spouse be claimed as a dependent on someone else’s tax return for 2000?
Yes
(STOP. You cannot take the credit. Write “No” to the right of line 60a (Form 1040; or line 38a, Form 1040A))
No (Continue)
D. Was your home and your spouse’s home in the United States for more than half of 2000? (A special exception may apply if you were in the military, and stationed outside the U.S.—see p. 43 of 1040 instructions)
Yes No (STOP. You cannot take the credit)
(continue)
20. Calculate Modified
Adjusted Gross Income:
A. Amount from
Form 1040, or 1040A, line 8b (tax exempt interest) 20 A.
B. Amount from Form 1040, line 34, or
Form 1040A, line 20 (adjusted gross income) 20 B.
C. Total (modified adjusted
gross
income (MAGI)) 20
C.
21. Is the Total amount on 20 C, above (“modified adjusted gross income”) less than less than:
$31,152 and you have two or more qualifying children; or
$27,414, and you have one qualifying child; or
$10, 380, and you have no qualifying child?
Yes No (STOP. The credit cannot be claimed.
(continue) Write “No” to the right of line 60a (Form 1040,;or line 38a,
Form 1040A)
22. Determine EIC based on
modified adjusted gross income (20 C):
A. Modified adjusted gross income (20 C) above: 22 A.
B. Amount of EIC based on modified
adjusted gross income (20 C) using the
table on p. 47-49 of the 1040 book
or p. 45 of the 1040A book 22 B.
C. If the amount of EIC is zero, write “No”
to the right of line 60a (Form 1040;
or line 38a, Form 1040A).
23. Calculate Total Earned
Income (for EIC)
Calculate your total earned income for EIC purposes (this is non-taxable and taxable earned income combined):
A. Non-taxable earned income (Note: Nontaxable earned income does not include welfare, workfare, or qualified foster care payments):
Add all non-taxable income you and your spouse earned (if filing jointly), including anything of value that you were paid (goods, services, barter, etc.) that is not taxable from work, including the following:
(1) Deferred
compensation (e.g., 401(k), etc.) 23 A(1)
(2) Salary reductions (e.g. under a cafeteria plan
unless the deductions are include in box 1
of your W-2 form. (“Cafeteria plans” allow
employees to receive either cash or certain
benefits that are not taxed such as accident
and health
insurance) 23
A(2)
(3) Mandatory contributions to state or local
retirement
plans 23
A(3)
(4) Military employee basic housing,
subsistence, and combat zone compensation.
(These amounts are shown in box 13 of your
W-2 with code
Q) 23
A(4)
(5) Meals and lodging provided for the convenience
of your employer 23 A(5)
(6) Housing allowances or rental value of a
parsonage for clergy members 23 A(6)
(7) Excludable educational assistance benefits.
These benefits may be shown in box 14
of your W-2
form 23
A(7)
(8) Certain amounts received by Native Americans
(See Publication 596) 23 A(8)
(9) Any other non-taxable earned income 23 A(9)
(10) TOTAL Nontaxable Earned Income 23 A(10)
Enter the type of nontaxable income and
the amount on line 8b of 1040EZ
(Enter the amount and type of your nontaxable earned income on Form 1040, line 60b; or Form 1040A, line 38b)
B. Taxable
earned income:
(1) Amount from 1040, or 1040A, line 7 23 B(1)
a. Less taxable scholarships, and/or fellowships
not reported on a W-2 form 23 B(1)a.< >
b. Less any amount paid while an inmate in
a penal institution for work (print “PRI” and
the amount on the dotted line next to line 7 of
Form 1040, or Form 1040A) 23 B(1)b.< >
(2) TOTAL
taxable earned income 23
B(2)
C. (1) Nontaxable earned income (23 A(10)) 23 C(1)
+
(2) Taxable earned income (23 B(2)) 23 C(2)
D. TOTAL EARNED INCOME: 23 D
The total earned income (combined non-taxable earned income
and taxable earned income)
24. Is the amount on 23 D, above (total earned income) less than $10,380 if you have no qualifying children; $27,413 if you have only one qualifying child, and less than $31,152 if you have 2 or more qualifying children?
Yes No (STOP. The credit cannot be claimed.
(Continue) Write “No” to the right of line 60a (Form 1040;
or line 38a, Form 1040A)
25. Determine
your EIC using Total Earned Income (23 D):
A. Total earned income (23 D) above: 25 A
B. Amount of EIC based on total earned
income (23 D) using the table
on p. 47 of the 1040 book; or
p. 45 of the1040A book 25 B
C. If the amount of EIC is zero, write “No”
to the right of line 60a, Form 1040; or line 38a, Form 1040A).
Earned Income Worksheet (from 1040 and
1040A instructions, p. 44)
1. (Repeat entry): Total Earned Income (23 D., above) 1.
2. (Repeat entry) EIC based on Total Earned Income (25 B) 2.
(1040 book, p. 47; 1040A book, p. 45)
3. (Repeat entry): Modified adjusted gross income (20 C) 3.
4. Are the amounts on 3 and 1 the same?
________ Yes ________ No (continue)
(leave line 5 blank, and
enter the amount from
line 2 on line 6 (EIC
based on total earned
income) 4.
5. Is the amount of your modified adjusted gross income (“3”) less than $5800 if you do not have a qualifying child, or less than $12,700 if you have one or more qualifying children?
Yes No (i.e., MAGI is
(leave line 5 blank and more than $5800 or $12,700;
enter the amount of your look up the amount of your
EIC from “2”) EIC using modified adjusted
gross income (3, above, and
11 C) and enter the amount here: 5.
6. Look at the amounts from
5 and 2, above and enter
the smaller of the two amounts
here and on line 60a, Form 1040;
or on line 38a, Form 1040A. 6.
(Limitation on EIC for Taxpayer’s with a qualifying child(ren): If the qualifying child(ren) for whom you are claiming EIC could be the qualifying child)ren of another taxpayer, then, only the taxpayer with the higher modified adjusted gross income may claim the credit. If he or she declines the credit, then neither taxpayer may take it under any circumstance (i.e., the taxpayer with the lower modified adjusted gross income may take it without a qualifying child).
NOTE: If you were self-employed, filing a Schedule SE because you had church employee income of $108.28 or more, or a statutory employee, or filing a Schedule C, or C-EZ, check the instructions to Form 1040, p. 43 (for church employees), and go to Worksheet B on p. 45 of the instructions. Disregard any calculation of Total Earned Income, above).
[1] A “qualifying child” is a child who is your son, daughter, grandchild, stepchild, adopted child or foster child, (a foster child is any child you cared for as your own child AND who is your brother, sister, stepbrother, or stepsister, or a descendent thereof; or any child place with you by an authorized placement agency. See p. 16 of the 1040EZ instructions) AND who was, at the end of 2000, under age 19, (or if a full-time student, under age 24), or permanently and totally disabled, AND who either lived with you in the United States for more than half of 2000 (for all of 2000, if the child is a foster child) or who was born or died in 2000 and your home was the child’s home for the entire year he or she was alive in 2000. Note: Special rules apply if the child was married or also meets the conditions to be a qualifying child of another person (other than your spouse if filing a joint return). See Publication 596, or check TeleTax topic 601).