CREDITS:EARNED INCOME CREDIT

EARNED INCOME CREDIT

The Earned Income Credit (EIC) is a refundable tax credit available to certain taxpayers who work but do not earn high incomes. They can receive a refund even if they have no filing

requirement, owe no tax, and had no income tax withheld.

Purpose: to reduce the tax burden and supplement the wages of working families whose earnings are less than certain maximums, depending on their filing status and number of qualifying children.

Eligibility

Taxpayers and all qualifying children must have SSNs.

Cannot file Married Filing Separately. Must be US citizens or resident aliens all

year. Taxpayer cannot be qualifying child of

another. Taxpayer cannot have over $3,100

investment income.

Eligibility, cont’d.

Taxpayer must have earned income, and all income must be below limit.

What is “Earned Income” for EIC? Wages, self-employment, etc.: Yes Social security, pension, unemployment,

alimony, etc.: No

Eligibility, cont’d.

If taxpayer has no qualifying child: At least one taxpayer on the return must

be 25 but not 65 on Dec. 31.

Taxpayer cannot be a dependent or qualifying child of another person.

Taxpayer must have lived in the US more than half the year.

Eligibility, cont’d.

If taxpayer has a qualifying child: “Child” must be child or sibling, or descendent

of these (step, half & foster are OK). Child must be below 19 or student and below

24, and younger than taxpayer, or disabled. Child must be unmarried, unless a dependent. Child must live with taxpayer over half the year

(i.e., the non-custodial parent cannot count child for EIC).

Child must not be used by anyone else for EIC purposes.

Entering the information

When entering dependent information, check the EIC box if there is any likelihood that the dependent qualifies the taxpayer for the EIC.

TaxWise will prompt you to complete the necessary forms.

If you think the taxpayer should qualify but TaxWise says he/she does not, check those forms VERY carefully.

Previously Denied EIC

If an EIC claim was denied or reduced due to any reason other than a math or clerical error:

A taxpayer who was reckless or intentionally disregarded the EIC rules cannot claim the EIC for 2 tax years.

If the error was due to fraud, the taxpayer cannot claim the EIC for 10 tax years.

Previously Denied EIC

Taxpayers who have been denied the EIC have been officially notified of this.

If so, you must file Form 8862, Information to Claim Earned Income Credit After Disallowance, with the tax return.

Advance EIC Payments

This is FYI in case someone asks.

In previous years some taxpayers could opt to receive part of the projected EIC in their paychecks throughout the year.

This policy was discontinued effective in 2011, so AEIC payments should no longer appear on W-2s.