Earned Income Credit

Overview

The earned income credit (EIC) is a refundable credit designd to help lower income taxpayers. It may be claimed not only by workers with dependent children who maintain a household for the child, but also, by childless workers.

You may be able to take the EIC if:

 A child lived with you and you earned less than $38,646 ($41,646 if married filing jointly), or
 A child did not live with you and you earned less than $12,880 ($15,880 if married filing jointly).

 For 2008, the EIC can be as much as $2,917 if you have one qualifying child and $4,824 if you have more than one qualifying child. If you do not have a qualifying child, the credit can be as much as $438.

Claiming the EIC for 2008 With Qualifying Children

You may claim the EIC on a 2008 return if you:

 Have earned income, such as wages and self-employment earnings, and adjusted gross income of under $33,995 ($36,995 if married filing jointly) if you have one qualifying child or under $38,646 ($41,646 if married filing jointly) if you have two or more qualifying children.

 Have a qualifying child who lived with you in your main home in the U.S. for more than six months during 2008.

 File a joint return if married. If you are married and you file separately, you may not claim the EIC.
If you lived apart from your spouse for the last half of the year, you may be able to claim the credit as a head of household.

 You identify and provide information about a qualifying child, including your child's social security number on the Schedule EIC that must be filed with your tax return.

 Are not a qualifying child of another person.

 Incude your social security number on your tax return and, if married, you spouse's social security number.

Qualifying child: a qualifying child is an individual who satisfies a relationship test with respect to the taxpayer, as well as a residency test and an age test.

To satisfy the relationship test, the individual must be the taxpayer's son or daughter, stepson or stepdaughter, brother or sister, descendant of any of these persons or an eligible foster child. Legally adopted children of the taxpayer are treated as children by blood.

The residency test for qualifying children is satisfied if the individual shares the same principal place of abode with the taxpayer for more than one half of the tax year. This requirement now also applies to eligible foster children.

Certain temporary absences due to education or illness are disregarded in applying this test. For purposes of the residency test, the principal place of abode must be in the United States.

A child meets the age test if he or she:

 Has not reached age 19 as of the close of the tax year

 Is a full time student who has not reached age 24 as of the close of the tax year

 Is permanently and totally disabled at any time during the tax year

If more than one individual is eligible to claim a child for the earned income credit, the priority order is as follows:

 Priority is first given to the parent claiming the child

 If two individuals claiming the same qualifying child are the parents, priority is given to the parent with whom the child resided for the greater part of the year

 If this still results in a tie, then the parent with the higher adjusted gross income is entitled to claim the child for earned income tax purposes

 In the event that two individuals claiming the same qualifying child are not the parents, then the one with the higher adjusted gross income may claim the child

 A taxpayer who is a qualifying child cannot claim the earned income tax credit

 Married taxpayers can claim the credit only if they file a joint return, unless they can qualify as unmarried for tax filing purposes

An individual without a qualifying child may also be eligible if:

 The individual has a principal residence in the United States for more than one half of the tax year

 The individual (or, if married, either the individual or the individual's spouse) is at least age 25 but not age 65 before the close of the tax year

 The individual is not claimed as a dependent by another taxpayer

Claiming the EIC for 2008 With Qualifying Children

You may claim the EIC on a 2008 return if you:

 Have earned income, such as wages and self-employment earnings, and adjusted gross income of under $12,880 ($15,880 if married filing jointly).

 Have your main home in the U.S. for more than six months during 2008.

 Are at least 25 but under age 65 at the end of 2008. If filing a joint return, either you or your spouse must satisfy this age test.

 File a joint return if married, unless you lived apart for the last six months and qualify to file as a head of jousehold.

 Are not a dependent of another person. If filing jointly, your spouse also must not be another taxpayer's dependent.

 Are not a qualifying child of another person. If filing jointly, your spouse also must not be another taxpayer's qualifying child.

 Incude your social security number on your tax return and, if married, you spouse's social security number.

Advance Payment of Earned Income Credit

Money Saving Tip. If you believe you are entitled to an earned income credit, you may file a certificate, Form W-5, with your employer to have a portion of the credit added to your paycheck throughout the year. To get the advanced earned income payments you must have a qualifying child.