History and Purpose of the EIC

• The earned income credit was established in 1975 as a way to reduce the tax burden on low income individuals and families. Over the years, the requirements have been changed, so it is important to consult the IRS or a tax consultant/preparer for the latest changes to the law.
  
  

Minimum Requirements

• These requirements are subject to change (please consult with the IRS or your tax preparer for updates) and were current as of June 2009.
  To qualify, a single person with no qualifying child can earn no more than $12,590 in adjusted gross income (AGI) or earned income (EI). A married couple (filing jointly) with no qualifying child can earn no more than $14,590 in AGI or EI.
  The adjusted gross income is different from standard gross income (total wages earned), which takes into account certain business expenses, IRA deductions, and student loan interest deduction. Earned income is income received in wages or another process allowed by the IRS at the time a tax return is filed. This may affect your eligibility for the EIC.
  A single person with one qualifying child can earn no more than $33,241 in AGI or EI. A married couple (filing jointly) with one qualifying child can earn no more than $35,241 in AGI or EI.
  A single person with more than one qualifying child can earn no more than $37,783 in AGI or EI. A married couple (filing jointly) can earn no more than $39,783 in AGI or EI.
  Once one of these earnings conditions is met, the taxpayer(s) must also have a valid social security number, be a U.S. citizen (or a resident alien) for the entire tax year, earn foreign income (claimed on IRS Form 2555), have earned no more than $2,900 from investments, and have some earned income during the tax year.
  
  

How Does a Child Qualify?

• The child must meet certain relationship, age, and residency standards which are outlined in an EIC worksheet with your taxes each year. The child being claimed for EIC credit cannot be claimed by anyone else on their tax return (like a divorced parent on a separate return). Finally, the person claiming a qualified child cannot themselves be a qualifying child of someone else.
  
  

Additional Requirements

• Those who meet the earning requirements but do not have a qualifying child must also meet additional requirements. The person claiming the credit must be at least 25 years old, but no older than 65 years old. They cannot be a dependent (or qualifying child) claimed by someone else on their return. Finally, the person claiming the credit must have lived within the United States for at least half of the tax year being claimed.
  
  

EIC Disqualifications

• There are certain conditions that would disqualify a person or couple from claiming the EIC. Married couples filing separately (not jointly) do not qualify.
  If a taxpayer claimed the EIC on a prior return and the IRS found they did not qualify, the taxpayer may be banned from claiming the credit for up to two years afterward if the IRS determines there was a willful disregard of the rules and standards for claiming the credit. After the two year period, the IRS may require a taxpayer to fill out Form 8862 in order to claim the credit.
  
  

Requirements for Claiming EIC on a Return or Advanced Payments

• If the taxpayer files Form 1040 or 1040A, she will also need to complete Schedule EIC (in most cases) and include it with their return. If tax software is used, this can often by done automatically by the tax program.
  If a taxpayer finds that they qualify for the EIC year after year, and the earning and tax situations for the following year will not change much, they can fill out and turn in IRS Form W-5 to their place of employment to qualify for advance EIC payments. The taxpayer will then receive some of the EIC credit in small amounts with each paycheck, rather than in a lump sum the following year.