36. Earned Income Credit
Table of Contents
* What's New
* Reminders
* Introduction
* Useful Items - You may want to see:
* Do You Qualify for the Credit?
o If Improper Claim Made in Prior Year
* Part A. Rules for Everyone
o Rule 1. Your AGI Must Be Less Than:
o Rule 2. You Must Have a Valid Social Security Number (SSN)
o Rule 3. Your Filing Status Cannot Be Married Filing Separately
o Rule 4. You Must Be a U.S. Citizen or Resident Alien All Year
o Rule 5. You Cannot File Form 2555 or Form 2555-EZ
o Rule 6. Your Investment Income Must Be $2,700 or Less
o Rule 7. You Must Have Earned Income
* Part B. Rules If You Have a Qualifying Child
o Rule 8. Your Child Must Meet the Relationship, Age, and
Residency Tests
o Rule 9. Your Qualifying Child Cannot Be Used By More Than One
Person To Claim the EIC
o Rule 10. You Cannot Be a Qualifying Child of Another Person
* Part C. Rules If You Do Not Have a Qualifying Child
o Rule 11. You Must Be at Least Age 25 but Under Age 65
o Rule 12. You Cannot Be the Dependent of Another Person
o Rule 13. You Cannot Be a Qualifying Child of Another Person
o Rule 14. You Must Have Lived in the United States More Than
Half of the Year
* Part D. Figuring and Claiming the EIC
o Rule 15. Your Earned Income Must Be Less Than:
o IRS Will Figure the EIC for You
o How To Figure the EIC Yourself
* Examples
o Example 1. John and Janet Smith (Form 1040A)
o Example 2. Kelly Green (Form 1040EZ)
* Advance Earned Income Credit
o How To Get Advance Payments for 2006
o Advance Payments Received in 2005
What's New
Qualifying child. There are some changes to the definition of qualifying
child. A qualifying child can include your eligible foster child, your
brother, or your sister, whether or not you care for them as you would your
own child. See Rule 8. If you and someone else have the same qualifying
child, only one of you can use that child to claim the following tax
benefits: the child's exemption, the child tax credit, head of household
filing status, the credit for child and dependent care expenses, and the
EIC. The other person cannot take any of these five tax benefits unless he
or she has a different qualifying child. For details, see Rule 9.
Earned income amount is more. The maximum amount of income you can earn and
still get the credit has increased. You may be able to take the credit if:
*
You have more than one qualifying child and you earned less than
$35,263 ($37,263 if married filing jointly),
*
You have one qualifying child and you earned less than $31,030
($33,030 if married filing jointly), or
*
You do not have a qualifying child and you earned less than $11,750
($13,750 if married filing jointly).
Your adjusted gross income also must be less than the amount in the above
list that applies to you. For details, see Rules 1 and 15.
Katrina Emergency Tax Relief Act of 2005. This Act provides tax relief for
persons affected by Hurricane Katrina. Under the Act, you may be able to
figure your 2005 EIC using your 2004 earned income if your 2005 earned
income is less than your 2004 earned income. You may also be able to claim
a student as a qualifying child even if he or she was prevented from
completing the normal school term. See Publication 4492.
Investment income amount is more. The maximum amount of investment income
you can have and still get the credit has increased to $2,700. See Rule 6.
Form 8836. If you received Form 8836, Qualifying Children Residency
Statement, you have been selected to participate in the EIC certification
pilot program. File the form with the IRS, following the form instructions,
to show that your child met the residency test described in Rule 8. If you
did not receive the form, you do not need to get it or file it. You have to
file Form 8836 only if it was mailed to you.
Reminders
Increased EIC on certain joint returns. A married person filing a joint
return may get more EIC than someone with the same income but a different
filing status. As a result, the EIC table has different columns for married
persons filing jointly than for everyone else. When you look up your EIC in
the EIC Table, be sure to use the correct column for your filing status and
the number of children you have.
Advance payment of the earned income credit in your paycheck. If you expect
to qualify for the earned income credit in 2006, you can receive part of it
in each paycheck throughout the year. See Advance Earned Income Credit,
later, for more information.
Online help. You can use the EITC Assistant at www.irs.gov/eitc to find out
if you are eligible for the credit. The EITC Assistant is available in
English and Spanish.
EIC questioned by IRS. The IRS may ask you to provide documents to prove
you are entitled to claim the EIC. We will tell you what documents to send
us. These may include: birth certificates, school records, medical records,
etc. We will also send you a letter with the name, address, and telephone
number of the IRS employee assigned to your case. The process of
establishing your eligibility will delay your refund.
Introduction
The earned income credit (EIC) is a tax credit for certain people who work
and have less than $37,263 of earned income. A tax credit usually means
more money in your pocket. It reduces the amount of tax you owe. The EIC
may also give you a refund.
How do you get the earned income credit? To claim the EIC, you must:
1.
Qualify by meeting certain rules, and
2.
File a tax return, even if you:
1.
Do not owe any tax,
2.
Did not earn enough money to file a return, or
3.
Did not have income taxes withheld from your pay.
When you complete your return, you can figure your EIC by using a worksheet
in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Or, if you
prefer, you can let the IRS figure the credit for you.
How will this chapter help you?
This chapter will explain the following:
*
The rules you must meet to qualify for the EIC,
*
How to figure the EIC, and
*
How to get advance payment of the EIC in your paycheck.
Useful Items - You may want to see:
Publication
*
596 Earned Income Credit (EIC)
Form (and Instructions)
*
Schedule EIC
Earned Income Credit (Qualifying Child Information)
*
W-5
Earned Income Credit Advance Payment Certificate
*
8862
Information To Claim Earned Income Credit After Disallowance
Do You Qualify for the Credit?
To qualify to claim the EIC, you must first meet all of the rules explained
in Part A, Rules for Everyone. Then you must meet the rules in Part B,
Rules If You Have a Qualifying Child, or Part C, Rules If You Do Not Have a
Qualifying Child. There is one final rule you must meet in Part D, Figuring
and Claiming the EIC. You qualify for the credit if you meet all the rules
in each part that applies to you.
*
If you have a qualifying child, the rules in Parts A, B, and D apply
to you.
*
If you do not have a qualifying child, the rules in Parts A, C, and D
apply to you.
Table 36-1, Earned Income Credit in a Nutshell. Use Table 36-1 as a guide
to Parts A, B, C, and D. The table is a summary of all the rules in each part.
Table 36-1. Earned Income Credit in a Nutshell
First, you must meet all the rules in this column. Second, you must meet
all the rules in one of these columns, whichever applies. Third, you must
meet the rule in this column.
Part A.
Rules for Everyone Part B.
Rules If You Have a Qualifying Child Part C.
Rules If You Do Not Have a Qualifying Child Part D.
Figuring and Claiming the EIC
1. Your adjusted gross income (AGI) must be less than:
•$35,263 ($37,263 for married filing jointly) if you have more than one
qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying
child, or
•$11,750 ($13,750 for married filing jointly) if you do not have a
qualifying child. 2. You must have a valid social security number.
3. Your filing status cannot be “Married filing separately.”
4. You must be a U.S. citizen or resident alien all year.
5. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned
income).
6. Your investment income must be $2,700 or less.
7. You must have earned income. 8. Your child must meet the relationship,
age, and residency tests.
9. Your qualifying child cannot be used by more than one person to claim
the EIC.
10. You cannot be a qualifying child of another person. 11. You must be at
least age 25 but under age 65.
12. You cannot be the dependent of another person.
13. You cannot be a qualifying child of another person.
14. You must have lived in the United States more than half of the year.
15. Your earned income must be less than:
•$35,263 ($37,263 for married filing jointly) if you have more than one
qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying
child, or
•$11,750 ($13,750 for married filing jointly) if you do not have a
qualifying child.
Do you have a qualifying child? You have a qualifying child only if you
have a child who meets the three tests described in Rule 8 and illustrated
in Figure 36-1.
If Improper Claim Made in Prior Year
If your EIC for any year after 1996 was denied or reduced for any reason
other than a math or clerical error, you must attach a completed Form 8862
to your next tax return to claim the EIC. You must also qualify to claim
the EIC by meeting the rules described in this chapter.
However, if your EIC was denied or reduced as a result of a math or
clerical error, do not attach Form 8862 to your next tax return. For
example, if your arithmetic is incorrect, the IRS can correct it. If you do
not provide a correct social security number, the IRS can deny the EIC.
These kinds of errors are called math or clerical errors.
If your EIC for any year after 1996 was denied and it was determined that
your error was due to reckless or intentional disregard of the EIC rules,
then you cannot claim the EIC for the next 2 years. If your error was due
to fraud, then you cannot claim the EIC for the next 10 years.
More information. See chapter 5 in Publication 596 for more detailed
information about the disallowance period and Form 8862.
Part A. Rules for Everyone
This part of the chapter discusses Rules 1 through 7. You must meet all
seven rules to qualify for the earned income credit. If you do not meet all
seven rules, you cannot get the credit and you do not need to read the rest
of the chapter.
If you meet all seven rules in this part, then read either Part B or Part C
(whichever applies) for more rules you must meet.
Rule 1. Your AGI Must Be Less Than:
*
$35,263 ($37,263 for married filing jointly) if you have more than
one qualifying child,
*
$31,030 ($33,030 for married filing jointly) if you have one
qualifying child, or
*
$11,750 ($13,750 for married filing jointly) if you do not have a
qualifying child.
Adjusted gross income (AGI). AGI is the amount on line 38 (Form 1040),
line 22 (Form 1040A), or line 4 (Form 1040EZ). If your AGI is equal to or
more than the applicable limit listed above, you cannot claim the EIC.
Example.
Your AGI is $32,500, you are single, and you have one qualifying child. You
cannot claim the EIC because your AGI is not less than $31,030. However, if
your filing status was married filing jointly, you might be able to claim
the EIC because your AGI is less than $33,030.
Community property. If you are married, but qualify to file as head of
household under special rules for married taxpayers living apart (see Rule
3), and live in a state that has community property laws, your AGI includes
that portion of both your and your spouse's wages that you are required to
include in gross income. This is different from the community property
rules that apply under Rule 7.
Table 36-1. Earned Income Credit in a Nutshell
First, you must meet all the rules in this column. Second, you must meet
all the rules in one of these columns, whichever applies. Third, you must
meet the rule in this column.
Part A.
Rules for Everyone Part B.
Rules If You Have a Qualifying Child Part C.
Rules If You Do Not Have a Qualifying Child Part D.
Figuring and Claiming the EIC
1. Your adjusted gross income (AGI) must be less than:
•$35,263 ($37,263 for married filing jointly) if you have more than one
qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying
child, or
•$11,750 ($13,750 for married filing jointly) if you do not have a
qualifying child. 2. You must have a valid social security number.
3. Your filing status cannot be “Married filing separately.”
4. You must be a U.S. citizen or resident alien all year.
5. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned
income).
6. Your investment income must be $2,700 or less.
7. You must have earned income. 8. Your child must meet the relationship,
age, and residency tests.
9. Your qualifying child cannot be used by more than one person to claim
the EIC.
10. You cannot be a qualifying child of another person. 11. You must be at
least age 25 but under age 65.
12. You cannot be the dependent of another person.
13. You cannot be a qualifying child of another person.
14. You must have lived in the United States more than half of the year.
15. Your earned income must be less than:
•$35,263 ($37,263 for married filing jointly) if you have more than one
qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying
child, or
•$11,750 ($13,750 for married filing jointly) if you do not have a
qualifying child.
Rule 2. You Must Have a Valid Social Security Number (SSN)
To claim the EIC, you (and your spouse if filing a joint return) must have
a valid SSN issued by the Social Security Administration (SSA). Any
qualifying child listed on Schedule EIC also must have a valid SSN. (See
Rule 8 if you have a qualifying child.)
If your social security card (or your spouse's if filing a joint return)
says “Not valid for employment” and your SSN was issued so that you (or
your spouse) could get a federally funded benefit, you cannot get the EIC.
An example of a federally funded benefit is Medicaid.
If you have a card with the legend “Not valid for employment” and your
immigration status has changed so that you are now a U.S. citizen or
permanent resident, ask the SSA for a new social security card without the
legend.
U. S. citizen. If you were a U. S. citizen when you received your SSN,
you have a valid SSN.
Valid for work only with INS or DHS authorization. If your social
security card reads “Valid for work only with INS authorization,” or “Valid
for work only with DHS authorization,” you have a valid SSN.
SSN missing or incorrect. If an SSN for you or your spouse is missing
from your tax return or is incorrect, you may not get the EIC.
Other taxpayer identification number. You cannot get the EIC if, instead
of an SSN, you (or your spouse if filing a joint return) have an individual
taxpayer identification number (ITIN). ITINs are issued by the Internal
Revenue Service to noncitizens who cannot get an SSN.
No SSN. If you do not have a valid SSN, put “No” next to line 66a (Form
1040), line 41a (Form 1040A), or line 8a (Form 1040EZ). You cannot claim
the EIC.
Getting an SSN. If you (or your spouse if filing a joint return) do not
have an SSN, you can apply for one by filing Form SS-5, Application for a
Social Security Card, with the Social Security Administration.
Filing deadline approaching and still no SSN. If the filing deadline is
approaching and you still do not have an SSN, you have two choices.
1.
Request an automatic 6-month extension of time to file your return.
You can get this extension by filing Form 4868, Application for Automatic
Extension of Time to File U.S. Individual Income Tax Return. For more
information, see chapter 1.
2.
File the return on time without claiming the EIC. After receiving the
SSN, file an amended return (Form 1040X, Amended U.S. Individual Income Tax
Return) claiming the EIC. Attach a filled-in Schedule EIC if you have a
qualifying child.
Rule 3. Your Filing Status Cannot Be Married Filing Separately
If you are married, you usually must file a joint return to claim the EIC.
Your filing status cannot be “Married filing separately.”
Spouse did not live with you. If you are married and your spouse did not
live in your home at any time during the last 6 months of the year, you may
be able to file as head of household, instead of married filing separately.
In that case, you may be able to claim the EIC. For detailed information
about filing as head of household, see chapter 2.
Rule 4. You Must Be a U.S. Citizen or Resident Alien All Year
You cannot claim the earned income credit if you are a nonresident alien
for any part of the year, unless:
1.
You are married to a U.S. citizen or a resident alien, and
2.
You choose to be treated as a resident for all of 2005 by filing a
joint return. If you need more information on making this choice, see
Publication 519, U.S. Tax Guide for Aliens.
Note.
If you make the choice in (2) above, you and your spouse are taxed on your
worldwide income. You cannot claim any tax treaty benefits as a resident of
a foreign country during a tax year in which the choice is in effect.
Rule 5. You Cannot File Form 2555 or Form 2555-EZ
You cannot claim the earned income credit if you file Form 2555, Foreign
Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. You file
these forms to exclude income earned in foreign countries from your gross
income, or to deduct or exclude a foreign housing amount. U.S. possessions
are not foreign countries. See Publication 54, Tax Guide for U.S. Citizens
and Resident Aliens Abroad, for more detailed information.
Rule 6. Your Investment Income Must Be $2,700 or Less
You cannot claim the earned income credit unless your investment income is
$2,700 or less. If your investment income is more than $2,700, you cannot
claim the credit. For most people, investment income is the total of the
following amounts.
*
Taxable interest (line 8a of Form 1040 or 1040A).
*
Tax-exempt interest (line 8b of Form 1040 or 1040A).
*
Dividend income (line 9a of Form 1040 or 1040A).
*
Capital gain net income (line 13 of Form 1040, if more than zero, or
line 10 of Form 1040A).
If you file Form 1040EZ, your investment income is the total of the amount
of line 2 and the amount of any tax-exempt interest you wrote to the right
of the words “Form 1040EZ” on line 2.
However, if you are reporting income or loss from the rental of personal
property on Form 1040, line 21, or are filing Schedule E (Form 1040), Form
8814, or Form 4797, see Rule 6 in chapter 1 of Publication 596 for more
information.
Rule 7. You Must Have Earned Income
This credit is called the earned income credit because, to qualify, you
must work and have earned income. If you are married and file a joint
return, you meet this rule if at least one spouse works and has earned
income. If you are an employee, earned income includes all the taxable
income you get from your employer. If you are self-employed or a statutory
employee, you will figure your earned income on EIC Worksheet B in the
instructions for Form 1040.
Earned Income
Earned income includes all of the following types of income.
1.
Wages, salaries, tips, and other taxable employee pay. Employee pay
is earned income only if it is taxable. Nontaxable employee pay, such as
certain dependent care benefits and adoption benefits, is not earned
income. But there is an exception for nontaxable combat pay, which you can
choose to include in earned income, as explained below.
2.
Net earnings from self-employment.
3.
Gross income received as a statutory employee.
Wages, salaries, and tips. Wages, salaries, and tips you receive for
working are reported to you on Form W-2, box 1. You should report these on
line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040).
Nontaxable combat pay election. You can elect to have your nontaxable
combat pay included in earned income for the earned income credit. Electing
to include nontaxable combat pay in earned income may increase or decrease
your EIC. Figure the credit with and without your nontaxable combat pay
before making the election. If you make the election, you must include in
earned income all nontaxable combat pay you received. If you are filing a
joint return and both you and your spouse received nontaxable combat pay,
you can each make your own election. The amount of your nontaxable combat
pay should be shown on your Form W-2, in box 12, with code Q.
Self-employed persons and statutory employees. If you are self-employed
or received income as a statutory employee, you must use the Form 1040
instructions to see if you qualify to get the EIC.
Approved Form 4361 or Form 4029
This section is for persons who have an approved:
*
Form 4361, Application for Exemption from Self-Employment Tax for Use
by Ministers, Members of Religious Orders, and Christian Science
Practitioners, or
*
Form 4029, Application for Exemption from Social Security and
Medicare Taxes and Waiver of Benefits.
Each approved form exempts certain income from social security taxes. Each
form is discussed in this section in terms of what is or is not earned
income for purposes of the EIC.
Form 4361. Even if you have an approved Form 4361, amounts you received
for performing ministerial duties as an employee count as earned income.
This includes wages, salaries, tips, and other taxable employee
compensation. Amounts you received for performing ministerial duties, but
not as an employee, do not count as earned income. Examples include fees
for performing marriages and honoraria for delivering speeches.
Form 4029. Even if you have an approved Form 4029, all wages, salaries,
tips, and other taxable employee compensation count as earned income.
However, amounts you received as a self-employed individual do not count as
earned income. Also, in figuring earned income, do not subtract losses on
Schedule C, C-EZ, or F from wages on line 7 of Form 1040.
Disability Benefits
If you retired on disability, benefits you receive under your employer's
disability retirement plan are considered earned income until you reach
minimum retirement age. Minimum retirement age generally is the earliest
age at which you could have received a pension or annuity if you were not
disabled. You must report your taxable disability payments on line 7 of
either Form 1040 or Form 1040A until you reach minimum retirement age.
Beginning on the day after you reach minimum retirement age, payments you
receive are taxable as a pension and are not considered earned income.
Report taxable pension payments on Form 1040, lines 16a and 16b (or Form
1040A, lines 12a and 12b).
Disability insurance payments. Payments you received from a disability
insurance policy that you paid the premiums for are not earned income. It
does not matter whether you have reached minimum retirement age. If this
policy is through your employer, the amount may be shown in box 12 of your
Form W-2 with code “J.”
Income That Is Not Earned Income
Examples of items that are not earned income include interest and
dividends, pensions and annuities, social security and railroad retirement
benefits (including disability benefits), alimony and child support,
welfare benefits, workers' compensation benefits, unemployment compensation
(insurance), nontaxable foster care payments, and veterans' benefits,
including VA rehabilitation payments. Do not include any of these items in
your earned income.
Earnings while an inmate. Amounts received for work performed while an
inmate in a penal institution are not earned income when figuring the
earned income credit. This includes amounts for work performed while in a
work release program or while in a halfway house.
Workfare payments. Nontaxable workfare payments are not earned income for
the EIC. These are cash payments certain people receive from a state or
local agency that administers public assistance programs funded under the
federal Temporary Assistance for Needy Families (TANF) program in return
for certain work activities such as (1) work experience activities
(including remodeling or repairing public housing) if sufficient private
sector employment is not available, or (2) community service program
activities.
Community property. If you are married, but qualify to file as head of
household under special rules for married taxpayers living apart (see Rule
3), and live in a state that has community property laws, your earned
income for the EIC does not include any amount earned by your spouse that
is treated as belonging to you under those laws. That amount is not earned
income for the EIC, even though you must include it in your gross income on
your income tax return. Your earned income includes the entire amount you
earned, even if part of it is treated as belonging to your spouse under
your state's community property laws.
Nontaxable military pay. Nontaxable pay for members of the Armed Forces
is not considered earned income for the EIC. Examples of nontaxable
military pay are combat pay, the Basic Allowance for Housing (BAH), and the
Basic Allowance for Subsistence (BAS). See Publication 3, Armed Forces' Tax
Guide, for more information.
This icon paragraph informs taxpayer of the ability to include nontaxable
combat pay in earned income.
Combat pay. You can elect to have your nontaxable combat pay considered
earned income for the EIC. See Nontaxable combat pay election , earlier.
Part B. Rules If You Have a Qualifying Child
If you have met all of the rules in Part A, read Part B to see if you have
a qualifying child.
Part B discusses Rules 8 through 10. You must meet all three of these
rules, in addition to the rules in Parts A and D, to qualify for the earned
income credit with a qualifying child.
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Qualifying child
You must file Form 1040 or Form 1040A to claim the EIC with a qualifying
child. (You cannot file Form 1040EZ). You also must complete Schedule EIC
and attach it to your return. If you meet all the rules in Part A and this
part, read Part D to find out what to do next.
Caution
If you do not meet Rule 8 , you do not have a qualifying child. Read Part C
to find out if you can get the earned income credit without a qualifying child.
Rule 8. Your Child Must Meet the Relationship, Age, and Residency Tests
Your child is a qualifying child if your child meets three tests. The three
tests are:
1.
Relationship,
2.
Age, and
3.
Residency.
The three tests are illustrated in Figure 36-1. The paragraphs that follow
contain more information about each test.
Relationship Test
To be your qualifying child, a child must be your:
*
Son, daughter, stepchild, eligible foster child, or a descendant of
any of them (for example, your grandchild), or
*
Brother, sister, half brother, half sister, stepbrother, stepsister,
or a descendant of any of them (for example, your niece or nephew).
The following definitions clarify the relationship test.
Adopted child. An adopted child is always treated as your own child. The
term “adopted child” includes a child who was lawfully placed with you for
legal adoption.
Eligible foster child. For the EIC, a person is your eligible foster
child if the child is placed with you by an authorized placement agency or
by judgement, decree, or other order of any court of competent
jurisdiction. An authorized placement agency includes a state or local
government agency. It also includes a tax-exempt organization licensed by a
state. In addition, it includes an Indian tribal government or an
organization authorized by an Indian tribal government to place Indian
children.
Example.
Debbie, who is 12 years old, was placed in your care 2 years ago by an
authorized agency responsible for placing children in foster homes. Debbie
is your eligible foster child.
Married child. If your child was married at the end of the year, he or
she does not meet the relationship test unless either of these two
situations applies to you:
1.
You can claim the child's exemption, or
2.
The reason you cannot claim the child's exemption is that you gave
that right to your child's other parent under the Special rule for divorced
or separated parents, described later.
Age Test
Your child must be:
1.
Under age 19 at the end of 2005,
2.
A full-time student under age 24 at the end of 2005, or
3.
Permanently and totally disabled at any time during 2005, regardless
of age.
The following example and definitions clarify the age test.
Example.
Your son turned 19 on December 10. Unless he was disabled or a full-time
student, he is not a qualifying child because, at the end of the year, he
was not under age 19.
Full-time student. A full-time student is a student who is enrolled for
the number of hours or courses the school considers to be full-time attendance.
Student defined. To qualify as a student, your child must be, during some
part of each of any 5 calendar months during the calendar year:
1.
A full-time student at a school that has a regular teaching staff,
course of study, and regularly enrolled student body, or
2.
A student taking a full-time, on-farm training course given by a
school described in (1), or a state, county, or local government.
The 5 calendar months need not be consecutive.
School defined. A school can be an elementary school, junior or senior
high school, college, university, or technical, trade, or mechanical
school. However, on-the-job training courses, correspondence schools, and
Internet schools do not count as schools for the EIC.
Vocational high school students. Students who work on co-op jobs in
private industry as a part of a school's regular course of classroom and
practical training are considered full-time students.
Permanently and totally disabled. Your child is permanently and totally
disabled if both of the following apply.
1.
He or she cannot engage in any substantial gainful activity because
of a physical or mental condition.
2.
A doctor determines the condition has lasted or can be expected to
last continuously for at least a year or can lead to death.
Residency Test
Your child must have lived with you in the United States for more than half
of 2005. The following definitions clarify the residency test.
United States. This means the 50 states and the District of Columbia. It
does not include Puerto Rico or U.S. possessions such as Guam.
Homeless shelter. Your home can be any location where you regularly live.
You do not need a traditional home. For example, if your child lived with
you for more than half the year in one or more homeless shelters, your
child meets the residency test.
Military personnel stationed outside the United States. U.S. military
personnel stationed outside the United States on extended active duty are
considered to live in the United States during that duty period for
purposes of the EIC.
Extended active duty. Extended active duty means you are called or
ordered to duty for an indefinite period or for a period of more than 90
days. Once you begin serving your extended active duty, you are still
considered to have been on extended active duty even if you do not serve
more than 90 days.
Birth or death of a child. A child who was born or died in 2005 is
treated as having lived with you for all of 2005 if your home was the
child's home the entire time he or she was alive in 2005.
Temporary absences. Count time that you or your child is away from home
on a temporary absence due to a special circumstance as time lived with
you. Examples of a special circumstance include:
*
Illness,
*
School attendance,
*
Detention in a juvenile facility,
*
Business,
*
Vacation, and
*
Military service.
Kidnapped child. A kidnapped child is treated as living with you for
more than half of the year if the child lived with you for more than half
the part of the year before the date of the kidnapping. The child must be
presumed by law enforcement authorities to have been kidnapped by someone
who is not a member of your family or your child's family. This treatment
applies for all years until the child is returned. However, the last year
this treatment can apply is the earlier of:
1.
The year there is a determination that the child is dead, or
2.
The year the child would have reached age 18.
If your qualifying child has been kidnapped and meets these requirements,
enter “KC,” instead of a number, on line 6 of Schedule EIC.
Social security number. Your qualifying child must have a valid social
security number (SSN) unless the child was born and died in 2005. You
cannot claim the EIC on the basis of a qualifying child if:
1.
Your qualifying child's SSN is missing from your tax return or is
incorrect,
2.
Your qualifying child's social security card says “Not valid for
employment” and was issued only for use in getting a federally funded
benefit, or
3.
Instead of an SSN, your qualifying child has:
1.
An individual taxpayer identification number (ITIN), which is
issued to a noncitizen who cannot get an SSN, or
2.
An adoption taxpayer identification number (ATIN), which is
issued to adopting parents who cannot get an SSN for the child being
adopted until the adoption is final.
If you have two qualifying children and only one has a valid SSN, you can
claim the EIC only on the basis of that child. For more information about
SSNs, see Rule 2.
Rule 9. Your Qualifying Child Cannot Be Used By More Than One Person To
Claim the EIC
Sometimes a child meets the rules to be a qualifying child of more than one
person. However, only one person can treat that child as a qualifying child
and claim the EIC using that child. The paragraphs that follow will help
you decide who can claim the EIC when more than one person has the same
qualifying child.
You can choose which person will claim the EIC. If you and someone else
have the same qualifying child, you and the other person(s) can decide
which of you, if otherwise eligible, will take all of the following tax
benefits based on the qualifying child.
*
The child's exemption.
*
The child tax credit.
*
Head of household filing status.
*
The credit for child and dependent care expenses.
*
The EIC.
The other person cannot take any of these five tax benefits unless he or
she has a different qualifying child.
If you and the other person(s) cannot agree and more than one person
claims the EIC or the other tax benefits just listed using the same child,
the tie-breaker rule (explained in Table 36-2) applies. However, the
tie-breaker rule does not apply if the other person is your spouse and you
file a joint return.
Caution
If a child is treated as the qualifying child of the noncustodial parent
under the special rule for children of divorced or separated parents,
described next, see Applying Rule 9 to divorced or separated parents, later.
If another person claims the EIC using this child. If your EIC is denied
because your qualifying child is treated under this rule as the qualifying
child of another person for 2005, you may be able to take the EIC using a
different qualifying child, but you cannot take the EIC for people who do
not have a qualifying child.
If the other person cannot claim the EIC. If you and someone else have
the same qualifying child but the other person cannot claim the EIC because
he or she is not eligible or his or her earned income or AGI is too high,
you may be able to treat the child as a qualifying child. See Example 5.
But also see You can choose which person will claim the EIC, earlier.
Example 1 - child lived with parent and grandparent.
You and your 2-year-old son lived with your mother all year. You are 25
years old. Your only income was $9,000 from a part-time job. Your mother's
only income was $20,000 from her job. Your son is a qualifying child of
both you and your mother because he meets the relationship, age, and
residency tests for both you and your mother. However, only one of you can
treat him as a qualifying child to claim the EIC (and, if that person
qualifies, the other tax benefits listed in You can choose which person
will claim the EIC, earlier). You agree to let your mother claim him.
This means, if you do not claim your son as a qualifying child for the EIC
or any of the other tax benefits listed in You can choose which person will
claim the EIC, your mother can treat your son as a qualifying child to
claim the EIC and any other tax benefit listed for which she qualifies.
Example 2 - child lived with parent and grandparent.
The facts are the same as in Example 1 except that you and your mother both
claim your son as a qualifying child. In this case, you as the child's
parent will be the only one allowed to claim your son as a qualifying child
for the EIC and the other tax benefits listed in You can choose which
person will claim the EIC. The IRS will disallow your mother's claim to the
EIC and any other tax benefit listed, unless she has another qualifying child.
Example 3 - three children lived with parent and grandparent.
The facts are the same as in Example 1 except that you also have two other
young children who are qualifying children of both you and your mother.
Only one of you can claim each child as a qualifying child. However, you
and your mother can split the three qualifying children between you. For
example, you can use one child and your mother can use the other two.
Example 4 - parent is qualifying child of grandparent.
The facts are the same as in Example 1 except that you are only 18 years
old. This means you are a qualifying child of your mother. Because of Rule
10, discussed next, you cannot claim the EIC. Only your mother may be able
to treat your son as a qualifying child to claim the EIC. If your mother
meets all the other requirements for claiming the EIC, she can treat both
you and your son as qualifying children for the EIC.
Example 5 - parent can claim EIC because grandparent cannot.
The facts are the same as in Example 1 except that your mother earned
$50,000 from her job. Because your mother's earned income is too high for
her to claim the EIC, only you can claim the EIC using your son.
Example 6 - separated parents.
You, your husband, and your 10-year-old son lived together until August 1,
2005, when your husband moved out of the household. In August and
September, your son lived with you. For the rest of the year, your son
lived with your husband. Your son is a qualifying child of both you and
your husband because your son lived with each of you for more than half the
year and because he met the relationship and age tests for both of you. You
and your husband are not divorced, legally separated, or separated under a
written separation agreement, so the special rule for divorced or separated
parents does not apply.
You and your husband will file separate returns. Your husband agrees to let
you treat your son as a qualifying child. This means, if your husband does
not claim your son as a qualifying child for the EIC or any of the other
tax benefits listed in You can choose which person will claim the EIC,
earlier, you can claim him as a qualifying child for the EIC and any other
tax benefit listed for which you qualify. However, you cannot claim head of
household filing status because you and your husband did not live apart the
last 6 months of the year. As a result, your filing status is married
filing separately, so you cannot claim the EIC or the credit for child and
dependent care expenses. See Rule 3.
Example 7 - separated parents.
The facts are the same as in Example 6 except that you and your husband
both claim your son as a qualifying child. In this case, only your husband
will be allowed to treat your son as a qualifying child. This is because,
during 2005, the boy lived with him longer than with you. You cannot claim
the EIC for persons either with or without a qualifying child. However,
because you and your husband did not live apart the last 6 months of the
year your husband cannot claim head of household filing status. As a
result, his filing status is married filing separately, so he cannot claim
the EIC or the credit for child and dependent care expenses. See Rule 3.
Example 8 - unmarried parents.
You, your 5-year-old son, and your son's father lived together all year.
You and your son's father are not married. Your son is a qualifying child
of both you and his father because he meets the relationship, age, and
residency tests for both you and his father. You earned $8,000 and your
son's father earned $18,000. Neither of you had any other income. Your
son's father agrees to let you treat the child as a qualifying child. This
means, if your son's father does not claim your son as a qualifying child
for the EIC or any of the other tax benefits listed in You can choose which
person will claim the EIC, earlier, you can claim him as a qualifying child
for the EIC and any other tax benefit listed for which you qualify.
Table 36-2. When More Than One Person Claims EIC Using Same Child
(Tie-Breaker Rule)
Caution: If a child is treated as the qualifying child of the
noncustodial parent under the rules for divorced or separated parents,
described later, see Applying Rule 9 to divorced or separated parents.
IF more than one person claims the the same child as a qualifying child and
. . . THEN . . .
Only one of the persons is the child's parent Only the parent can treat
the child as a qualifying child.
Two of the persons are parents of the child, and they do not file a joint
return together Only the parent with whom the child lived the longest
during the year can treat the child as a qualifying child.
Two of the persons are parents of the child, the child lived with each
parent the same amount of time during the year, and the parents do not file
a joint return together Only the parent with the highest adjusted gross
income (AGI) can treat the child as a qualifying child.
None of the persons are the child's parent Only the person with the
highest AGI can treat the child as a qualifying child.
Example 9 - unmarried parents.
The facts are the same as in Example 8 except that you and your son's
father both claim your son as a qualifying child. In this case, only your
son's father will be allowed to treat your son as a qualifying child. This
is because his AGI, $18,000, is more than your AGI, $8,000. You cannot
claim the EIC for persons either with or without a qualifying child.
Example 10 - child did not live with a parent.
You and your 7-year-old niece, your sister's child, lived with your mother
all year. You are 25 years old, and your only income was $9,300 from a
part-time job. Your mother's only income was $15,000 from her job. Your
niece is a qualifying child of both you and your mother because she meets
the relationship, age, and residency tests for both you and your mother.
However, only one of you can treat her as a qualifying child. Your mother
agrees to let you treat the child as a qualifying child. This means, if
your mother does not claim her as a qualifying child for the EIC or any of
the other tax benefits listed in You can choose which person will claim the
EIC, you can claim your niece as a qualifying child for the EIC and any
other tax benefit listed for which you qualify.
Example 11 - child did not live with a parent.
The facts are the same as in Example 10 except that you and your mother
both claim your niece as a qualifying child. In this case, only your mother
will be allowed to treat your niece as a qualifying child. This is because
your mother's AGI, $15,000, is more than your AGI, $9,300.
Special rule for divorced or separated parents. A child will be treated
as the qualifying child of his or her noncustodial parent (for purposes of
claiming an exemption, but not for EIC) if all of the following apply.
1.
The parents:
1.
Are divorced or legally separated under a decree of divorce or
separate maintenance,
2.
Are separated under a written separation agreement, or
3.
Lived apart at all times during the last 6 months of the year.
2.
The child received over half of his or her support for the year from
the parents.
3.
The child is in the custody of one or both parents for more than half
of the year.
4.
A decree of divorce or separate maintenance or written separation
agreement that applies to 2005 provides that the noncustodial parent can
claim the child as a dependent (and, in the case of a pre-1985 agreement,
the noncustodial parent provides at least $600 for the support of the child
during the year) or the custodial parent signs a written declaration that
he or she will not claim the child as a dependent for the year.
For details, see chapter 3. Also see, Applying Rule 9 to divorced or
separated parents, later.
Applying Rule 9 to divorced or separated parents. If a child is treated
as the qualifying child of the noncustodial parent under the special rule
for children of divorced or separated parents described earlier, the
noncustodial parent can claim an exemption and the child tax credit for the
child but cannot claim the child as a qualifying child for head of
household filing status, the credit for child and dependent care expenses,
or the EIC. If the child is the qualifying child of more than one other
person, only one of those persons can claim the child as a qualifying child
for head of household filing status, the credit for child and dependent
care expenses, and the EIC. No other person can claim any of these three
tax benefits unless he or she has a different qualifying child. If you and
any other person file a return claiming the child as a qualifying child for
any of these three tax benefits, the IRS will disallow all but one of the
claims using the tie-breaker rule in Table 36-2.
Rule 10. You Cannot Be a Qualifying Child of Another Person
You are a qualifying child of another person (your parent, guardian, foster
parent, etc.) if all of the following statements are true.
1.
You are that person's son, daughter, stepchild, grandchild, or
eligible foster child. Or, you are that person's brother, sister, half
brother, half sister, stepbrother, or stepsister (or the child or
grandchild of that person's brother, sister, half brother, half sister,
stepbrother, or stepsister).
2.
At the end of the year you were under age 19, or under age 24 and a
full-time student, or any age if you were permanently and totally disabled
at any time during the year.
3.
You lived with that person in the United States for more than half of
the year.
For more details about the tests to be a qualifying child, see Rule 8.
If you (or your spouse if filing a joint return) are a qualifying child of
another person, you cannot claim the EIC. This is true even if the person
for whom you are a qualifying child does not claim the EIC or meet all of
the rules to claim the EIC. Put “No” beside line 66a (Form 1040) or line
41a (Form 1040A).
Example.
You and your daughter lived with your mother all year. You are 22 years old
and attended a trade school full time. You had a part-time job and earned
$5,700. You had no other income. Because you meet the relationship, age,
and residency tests, you are a qualifying child of your mother. She can
claim the EIC if she meets all the other requirements. Because you are your
mother's qualifying child, you cannot claim the EIC. This is so even if
your mother cannot or does not claim the EIC.
Part C. Rules If You Do Not Have a Qualifying Child
Read this part if you:
1.
Do not have a qualifying child, and
2.
Have met all the rules in Part A.
Part C discusses Rules 11 through 14. You must meet all four of these
rules, in addition to the rules in Parts A and D, to qualify for the earned
income credit without a qualifying child.
Caution
If you have a qualifying child, the rules in this part do not apply to you.
You can claim the credit only if you meet all the rules in Parts A, B, and
D. See Rule 8 to find out if you have a qualifying child.
Rule 11. You Must Be at Least Age 25 but Under Age 65
You must be at least age 25 but under age 65 at the end of 2005. If you are
married filing a joint return, either you or your spouse must be at least
age 25 but under age 65 at the end of 2005. It does not matter which spouse
meets the age test, as long as one of the spouses does.
If neither you nor your spouse meets the age test, you cannot claim the
EIC. Put “No” next to line 66a (Form 1040), line 41a (Form 1040A), or line
8a (Form 1040EZ).
Example 1.
You are age 28 and unmarried. You meet the age test.
Example 2.
You are married and filing a joint return. You are age 23 and your spouse
is age 27. You meet the age test because your spouse is at least age 25 but
under age 65.
Rule 12. You Cannot Be the Dependent of Another Person
If you are not filing a joint return, you meet this rule if:
*
You checked box 6a on Form 1040 or 1040A, or
*
You did not check the “You” box on line 5 of Form 1040EZ, and you
entered $8,200 on that line.
If you are filing a joint return, you meet this rule if:
*
You checked both box 6a and box 6b on Form 1040 or 1040A, or
*
You and your spouse did not check either the “You” box or the
“Spouse” box on line 5 of Form 1040EZ, and you entered $16,400 on that line.
If you are not sure whether someone else can claim you (or your spouse if
filing a joint return) as a dependent, read the rules for claiming a
dependent in chapter 3.
If someone else can claim you (or your spouse if filing a joint return) as
a dependent on his or her return, but does not, you still cannot claim the
credit.
Example 1.
In 2005, you were age 25, single, and living at home with your parents. You
worked and were not a student. You earned $7,500. Your parents cannot claim
you as a dependent. When you file your return, you claim an exemption for
yourself by not checking the “You” box on line 5 of your Form 1040EZ and by
entering $8,200 on that line. You meet this rule.
Example 2.
The facts are the same as in Example 1, except that you earned $2,000. Your
parents can claim you as a dependent but decide not to. You do not meet
this rule. You cannot claim the credit because your parents could have
claimed you as a dependent.
Rule 13. You Cannot Be a Qualifying Child of Another Person
You are a qualifying child of another person (your parent, guardian, foster
parent, etc.) if all of the following statements are true.
1.
You are that person's son, daughter, stepchild, grandchild, or
eligible foster child. Or, you are that person's brother, sister, half
brother, half sister, stepbrother, or stepsister (or the child or
grandchild of that person's brother, sister, half brother, half sister,
stepbrother, or stepsister).
2.
At the end of the year you were under age 19, or under age 24 and a
full-time student, or any age if you were permanently and totally disabled
at any time during the year.
3.
You lived with that person in the United States for more than half of
the year.
If you (or your spouse if filing a joint return) are a qualifying child of
another person, you cannot claim the EIC. This is true even if the person
for whom you are a qualifying child does not claim the EIC or meet all of
the rules to claim the EIC. Put “No” next to line 66a (Form 1040), line 41a
(Form 1040A), or line 8a (Form 1040EZ).
Example.
You lived with your mother all year. You are age 26 and permanently and
totally disabled. Your only income was from a community center where you
went three days a week to answer telephones. You earned $3,400 for the year
and provided more than half of your own support. Because you meet the
relationship, age, and residency tests, you are a qualifying child of your
mother for the EIC. She can claim the EIC if she meets all the other
requirements. Because you are a qualifying child of your mother, you cannot
claim the EIC. This is so even if your mother cannot or does not claim the EIC.
Rule 14. You Must Have Lived in the United States More Than Half of the Year
Your home (and your spouse's, if filing a joint return) must have been in
the United States for more than half the year.
If it was not, put “No” next to line 66a (Form 1040), line 41a (Form
1040A), or line 8a (Form 1040EZ).
United States. This means the 50 states and the District of Columbia. It
does not include Puerto Rico or U.S. possessions such as Guam.
Homeless shelter. Your home can be any location where you regularly live.
You do not need a traditional home. If you lived in one or more homeless
shelters in the United States for more than half the year, you meet this rule.
Military personnel stationed outside the United States. U.S. military
personnel stationed outside the United States on extended active duty
(defined in Rule 8) are considered to live in the United States during that
duty period for purposes of the EIC.
Part D. Figuring and Claiming the EIC
Read this part if you have met all the rules in Parts A and B, or all the
rules in Parts A and C.
Part D discusses Rule 15. You must meet this rule, in addition to the rules
in Parts A and B, or Parts A and C, to qualify for the earned income credit.
This part of the chapter also explains how to figure the amount of your
credit. You have two choices.
1.
Have the IRS figure the EIC for you. If you want to do this, see IRS
Will Figure the EIC for You.
2.
Figure the EIC yourself. If you want to do this, see How To Figure
the EIC Yourself.
Rule 15. Your Earned Income Must Be Less Than:
*
$35,263 ($37,263 for married filing jointly) if you have more than
one qualifying child,
*
$31,030 ($33,030 for married filing jointly) if you have one
qualifying child, or
*
$11,750 ($13,750 for married filing jointly) if you do not have a
qualifying child.
Earned income generally means wages, salaries, tips, other taxable employee
pay, and net earnings from self-employment. Employee pay is earned income
only if it is taxable. Nontaxable employee pay, such as certain dependent
care benefits and adoption benefits, is not earned income. But there is an
exception for nontaxable combat pay, which you can choose to include in
earned income. Earned income is explained in detail in Rule 7.
Figuring earned income. If you are self-employed, a statutory employee,
or a member of the clergy or church employee who files Schedule SE (Form
1040), you will figure your earned income when you fill out Part 4 of EIC
Worksheet B in the Form 1040 instructions.
Otherwise, figure your earned income by using the worksheet in Step 5 of
the Form 1040 instructions for lines 66a and 66b or the Form 1040A
instructions for lines 41a and 41b, or the worksheet in Step 2 of the Form
1040EZ instructions for lines 8a and 8b.
When using one of those worksheets to figure your earned income, you will
start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form
1040EZ). You will then reduce that amount by any amount included on that
line and described in the following list.
*
Scholarship or fellowship grants not reported on a Form W-2. A
scholarship or fellowship grant that was not reported to you on a Form W-2
is not considered earned income for the earned income credit.
*
Inmates. Amounts received for work performed while an inmate in a
penal institution are not earned income for the earned income credit. This
includes amounts received for work performed while in a work release
program or while in a halfway house. If you received any amount for work
done while an inmate in a penal institution and that amount is included in
the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put
“PRI” and the amount on the dotted line next to line 7 (Form 1040), in the
space to the left of the entry space for line 7 (Form 1040A), or in the
space to the left of line 1 (Form 1040EZ).
*
Deferred compensation plans. A pension or annuity from a nonqualified
deferred compensation plan or a nongovernmental section 457 plan is not
considered earned income for the earned income credit. If you received such
an amount and it was included in the total on line 7 (Form 1040 or Form
1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line
next to line 7 (Form 1040), in the space to the left of the entry space for
line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ).
This amount may be reported in box 11 of your Form W-2. If you received
such an amount but box 11 is blank, contact your employer for the amount
received as a pension or annuity.
Clergy. If you are a member of the clergy who files Schedule SE and the
amount on line 2 of that schedule includes an amount that was also reported
on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form
1040) and enter the result in the first space of the worksheet in Step 5 of
the Form 1040 instructions for lines 66a and 66b. Put “Clergy” on the
dotted line next to line 66a (Form 1040).
Church employees. A church employee means an employee (other than a
minister or member of a religious order) of a church or qualified
church-controlled organization that is exempt from employer social security
and Medicare taxes. If you received wages as a church employee and included
any amount on both line 5a of Schedule SE and line 7 (Form 1040), subtract
that amount from the amount on line 7 (Form 1040) and enter the result in
the first space of the worksheet in Step 5 of the Form 1040 instructions
for lines 66a and 66b.
IRS Will Figure the EIC for You
The IRS will figure the amount of your EIC for you if you follow the steps
explained in this section.
Caution
Please do not ask the IRS to figure your EIC unless you are eligible for
it. Read the rules in Parts A, B, C, and D to see if you qualify.
Tip
If you want the IRS to also figure the amount of your income tax, see
chapter 30.
Form 1040
If you file Form 1040 and want the IRS to figure your credit for you,
follow these steps.
1.
Put “EIC” on the dotted line next to line 66a. Then, if you have any
of the types of income described earlier under Inmates, Deferred
compensation plans, or Clergy, follow the instructions given there.
2.
If you received nontaxable combat pay and are electing to include it
in your earned income for the EIC, enter the amount on line 66b (Form
1040). For details, see Nontaxable combat pay election in Rule 7.
3.
Complete all other parts of your return that apply to you (including
line 61), but do not fill in lines 71, 72, 73a, and 75. If you do not have
a qualifying child, stop here.
4.
If you have a qualifying child, complete Schedule EIC according to
its instructions. Be sure to enter the child's social security number on
line 2 of that schedule. If you do not, your credit may be reduced or
disallowed. Attach Schedule EIC to your return.
Form 1040A
If you file Form 1040A and want the IRS to figure your credit for you,
follow these steps.
1.
Put “EIC” to the left of the entry space for line 41a. Then, if you
have any of the types of income described earlier under Inmates or Deferred
compensation plans, follow the instructions given there.
2.
If you received nontaxable combat pay and are electing to include it
in your earned income for the EIC, enter the amount on line 41b (Form
1040A). For details, see Nontaxable combat pay election in Rule 7.
3.
Complete all other parts of your return that apply to you (including
line 37), but do not fill in lines 43, 44, 45a, and 47. If you do not have
a qualifying child, stop here.
4.
If you have a qualifying child, complete Schedule EIC according to
its instructions. Be sure to enter the child's social security number on
line 2 of that schedule. If you do not, your credit may be reduced or
disallowed. Attach Schedule EIC to your return.
Form 1040EZ
If you file Form 1040EZ and want the IRS to figure your credit for you,
follow these steps.
1.
Put “EIC” in the space to the left of line 8a. Then if you have any
of the types of income described earlier under Inmates or Deferred
compensation plans, follow the instructions given there.
2.
If you received nontaxable combat pay and are electing to include it
in your earned income for the EIC, enter the amount on line 8b (Form
1040EZ). For details, see Nontaxable combat pay election in Rule 7.
3.
Complete all other parts of your return that apply to you, but do not
fill in lines 9, 11a, or 12.
How To Figure the EIC Yourself
To figure the EIC yourself use the EIC Worksheet in the instructions for
the form you are using (Form 1040, Form 1040A, or Form 1040EZ).
Form 1040 and EIC Worksheet. If you file Form 1040 and want to figure the
credit yourself, follow these steps.
1.
Go to your form instruction booklet and turn to the instructions for
lines 66a and 66b, and look for Worksheet A or Worksheet B.
2.
Complete the EIC Worksheet that applies to your situation according
to its instructions. Complete Worksheet B if you were self-employed, a
member of the clergy or a church employee who files Schedule SE, or a
statutory employee filing Schedule C or C-EZ. Find the amount of your
credit in the EIC Table in your instruction booklet.
3.
Enter the amount of your earned income credit from Worksheet A or B
on Form 1040, line 66a.
4.
Keep the EIC Worksheet for your records. Do not attach it to your
income tax return. If you do not have a qualifying child, stop here.
5.
If you have a qualifying child, complete Schedule EIC according to
its instructions. Be sure to enter the child's social security number on
line 2 of that schedule. If you do not, your credit may be reduced or
disallowed. Attach Schedule EIC to your return.
Form 1040A and EIC Worksheet. If you file Form 1040A and want to figure
the credit yourself, follow these steps.
1.
Go to your form instruction booklet and turn to the instructions for
lines 41a and 41b, and look for the EIC Worksheet.
2.
Complete the EIC Worksheet according to its instructions. Find the
amount of your credit in the EIC Table in your form instruction booklet.
3.
Enter the amount of your earned income credit from line 6 of the EIC
Worksheet on Form 1040A, line 41a.
4.
Keep the EIC Worksheet for your records. Do not attach it to your
income tax return. If you do not have a qualifying child, stop here.
5.
If you have a qualifying child, complete Schedule EIC according to
its instructions. Be sure to enter the child's social security number on
line 2 of that schedule. If you do not, your credit may be reduced or
disallowed. Attach Schedule EIC to your return.
Form 1040EZ and EIC Worksheet. If you file Form 1040EZ and want to figure
the credit yourself, follow these steps.
1.
Go to your form instruction booklet and turn to the instructions for
lines 8a and 8b and look for the EIC Worksheet.
2.
Complete the EIC Worksheet according to its instructions. Find the
amount of your credit in the EIC Table in your form instruction booklet.
3.
Enter the amount of your earned income credit from line 6 of the EIC
Worksheet on Form 1040EZ, line 8a.
4.
Keep the EIC Worksheet for your records. Do not attach it to your
income tax return.
Examples
The following two comprehensive examples (complete with filled-in forms)
may be helpful.
1.
John and Janet Smith, a married couple with one qualifying child and
using Form 1040A.
2.
Kelly Green, age 30, a student, with no qualifying child and using
Form 1040EZ.
Example 1. John and Janet Smith (Form 1040A)
John and Janet Smith are married and will file a joint return. They have
one child, Amy, who is 3 years old. Amy lived with John and Janet for all
of 2005. John worked and earned $9,500. Janet worked part of the year and
earned $1,500. Their earned income and AGI are $11,000. John and Janet
qualify for the earned income credit and fill out the EIC Worksheet and
Schedule EIC. The Smiths will attach Schedule EIC to Form 1040A when they
send their completed return to the IRS.
They took the following steps to complete Schedule EIC and the EIC Worksheet.
Completing Schedule EIC
The Smiths complete Schedule EIC because they have a qualifying child. They
enter “John and Janet Smith” and John's SSN (the SSN that appears first on
their Form 1040A) on the line at the top of Schedule EIC. The Smiths then
fill out Qualifying Child Information (lines 1-6).
Line 1. The Smiths enter Amy's first name and last name in the column
“Child 1.”
Line 2. They enter Amy's SSN.
Line 3. They enter Amy's year of birth (2002).
Lines 4a and 4b. The Smiths skip lines 4a and 4b because Amy was born
after 1986.
Line 5. The Smiths enter “Daughter.” This line shows Amy's relationship
to John and Janet.
Line 6. The Smiths enter “12.” This is how many months Amy lived with
them in 2005.
Completing the EIC Worksheet
Next, the Smiths will complete the EIC Worksheet to figure their earned
income credit.
Line 1. The Smiths enter $11,000 (their earned income).
Line 2. The Smiths go to the Earned Income Credit Table in the Form 1040A
instructions. The Smiths find their income of $11,000 within the range of
$11,000 to $11,050. They follow this line across to the column that
describes their filing status and number of children and find $2,662. They
enter $2,662 on line 2.
Line 3. The Smiths enter their AGI of $11,000.
Line 4. The Smiths check the “Yes” box because lines 1 and 3 are the same
($11,000). They skip line 5 and enter the amount from line 2 ($2,662) on
line 6.
Line 6. The Smiths' EIC is $2,662.
Example 2. Kelly Green (Form 1040EZ)
Kelly Green is age 30 and a full-time student. She lived with her parents
in the United States for all of 2005. She had a part-time job and earned
$6,240. She earned $20 interest on a savings account. She is not eligible
to be claimed as a dependent on her parents' return. Although she lived
with her parents, she is not their qualifying child because she does not
meet the age test. She does not have any children.
Kelly qualifies for the earned income credit. Kelly will file Form 1040EZ
and complete the EIC Worksheet.
Completing the EIC Worksheet
Kelly figures the amount of her earned income credit on the EIC Worksheet
as follows.
Line 1. She enters $6,240 (her earned income).
Line 2. Kelly goes to the Earned Income Credit Table in the forms
instruction booklet. She finds her earned income of $6,240 in the range of
$6,200 to $6,250. Kelly follows this line across to the column that
describes her filing status and number of children and finds $399. She
enters $399 on line 2.
Line 3. Kelly enters $6,260 (her AGI).
Line 4. Kelly checks the “No” box because lines 1 and 3 are not the same.
Line 5. Kelly checks the “Yes” box because the amount on line 3 ($6,260)
is less than $6,550. She leaves line 5 blank and enters the amount from
line 2, $399, on line 6.
Line 6. She enters $399 here and on Form 1040EZ, line 8a. Kelly's earned
income credit is $399.
Advance Earned Income Credit
Do you expect to be eligible for the EIC this year (2006) and to have a
qualifying child? If so, you can choose to get payments of the EIC in your
paycheck now instead of waiting to get your EIC all at once in 2007 when
you file your tax return for the year 2006. These payments are called
advance EIC payments. This chapter explains how you may be able to get them
this year and how to report them on your tax return.
Who can get the advance payment of the earned income credit? To get part
of the earned income credit paid to you throughout the year in your
paycheck, you must meet all the following rules.
1.
You must expect that your earned income and AGI will each be less
than $32,001 ($34,001 if you expect to file married filing jointly).
2.
You must expect to have a qualifying child.
3.
You must expect to meet all the rules in Parts A, B, and D of this
chapter or in the instructions for Form W-5.
Persons who are not entitled to receive advance payments. Under certain
circumstances, even if you meet these rules, you may not be entitled to get
EIC. If your wages are not subject to federal income tax, social security
tax, or Medicare tax withholding, you cannot get the advance payment of the
earned income credit. If you are a farm worker paid on a daily basis, your
employer is not required to pay you the advance amount of the credit.
How To Get Advance Payments for 2006
If you meet the rules stated above under Who can get the advance payment of
the earned income credit, give your employer a Form W-5, Earned Income
Credit Advance Payment Certificate, for 2006.
After you have read the instructions and completed Form W-5, give the lower
part of the form to your employer. Keep the top part for your records.
More than one employer. If you have more than one employer, give a
certificate to only one of them. If you are married and both you and your
spouse are employed and expect to qualify for the credit, you may give a
Form W-5 to your employer and your spouse may give one to his or her employer.
If you receive advance payments of EIC in 2006, you must file a 2006 tax
return (even if you would not otherwise have to file) to report the
payments and claim any additional EIC. Box 9 of your Form W-2 will show the
amount you received. See the instructions for Form 1040 or Form 1040A for
the line number on which you report advance payments of EIC.
Receipt of advance payments you do not qualify for. If you receive
advance payments of EIC in 2006, and later find out that you are not
eligible for some or all of them, you still must report them on your tax
return.
Caution
You cannot use Form 1040EZ to report your advance payments. You must file
Form 1040 or Form 1040A.
When to give your employer a new Form W-5. The 2006 Form W-5 you give to
your employer is valid until December 31, 2006. If you expect to be
eligible for EIC in 2007 and you want to receive advance payments, you must
give your employer a new Form W-5 in 2007. Do this each year you expect to
be eligible for the EIC.
If you no longer want to get advance payments or if your situation
changes and you no longer qualify for the earned income credit, you must
give your employer a new Form W-5. Check the “No” box on line 1 of the new
form.
If your spouse files a Form W-5 with his or her employer, you must file a
new Form W-5 with your employer. Check the “Yes” box on line 3.
Advance Payments Received in 2005
If you received advance payments of EIC in 2005, you must file Form 1040 or
Form 1040A to report the payments. Your Form W-2, box 9, will show the
amount you received. Report the amount on line 61 (Form 1040) or line 37
(Form 1040A).
Caution
You cannot use Form 1040EZ to report your advance payments.
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the link to view the image.
Smith's Schedule EIC
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the link to view the image.
Smith's EIC Worksheet
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the link to view the image.
EIC worksheet-Kelly
EIC Eligibility Checklist
You may claim the EIC if you answer “Yes” to all the following questions.*
Yes No
1. Is your AGI less than:
*
$11,750 ($13,750 if married filing jointly) if you do not have a
qualifying child,
*
$31,030 ($33,030 if married filing jointly) if you have one
qualifying child, or
*
$35,263 ($37,263 if married filing jointly) if you have more than one
qualifying child?
(See Rule 1.)
? ?
2. Do you, your spouse, and your qualifying child each have a valid SSN?
(See Rule 2.)
? ?
3. Is your filing status married filing jointly, head of household,
qualifying widow(er), or single? (See Rule 3.)
Caution: If you are a nonresident alien, answer “Yes” only if your filing
status is married filing jointly and you are married to a U.S. citizen or
resident alien. (See Rule 4.)
? ?
4. Answer “Yes” if you are not filing Form 2555 or Form 2555-EZ.
Otherwise, answer “No.” (See Rule 5.)
? ?
5. Is your investment income $2,700 or less? (See Rule 6.)
? ?
6. Is your total earned income at least $1 but less than:
*
$11,750 ($13,750 if married filing jointly) if you do not have a
qualifying child,
*
$31,030 ($33,030 if married filing jointly) if you have one
qualifying child, or
*
$35,263 ($37,263 if married filing jointly) if you have more than one
qualifying child?
(See Rules 7 and 15.)
? ?
7. Answer “Yes” if you (and your spouse if filing a joint return) are not
a qualifying child of another person. Otherwise, answer “No.” (See Rules 10
and 13.)
? ?
STOP: If you have a qualifying child, answer questions 8 and 9 and skip
10-12. If you do not have a qualifying child, skip questions 8 and 9 and
answer 10-12.*
8. Does your child meet the age, residency, and relationship tests for a
qualifying child? (See Rule 8.)
? ?
9. Is your child a qualifying child only for you? Answer “Yes” if your
qualifying child also meets the tests to be a qualifying child of another
person, but the other person is not claiming any child-related tax benefits
using that child. Answer “No” if you do not know whether the other person
is claiming any child-related tax benefits using that child.
? ?
10. Were you (or your spouse if filing a joint return) at least age 25 but
under 65 at the end of 2005? (See Rule 11.)
? ?
11. Answer “Yes” if you (and your spouse if filing a joint return) cannot
be claimed as a dependent on anyone else's return. Answer “No” if you (or
your spouse if filing a joint return) can be claimed as a dependent on
someone else's return. (See Rule 12.)
? ?
12. Was your main home (and your spouse's if filing a joint return) in the
United States for more than half the year? (See Rule 14.)
? ?
* PERSONS WITH A QUALIFYING CHILD: If you answered “Yes” to questions 1
through 9, you can claim the EIC. Remember to fill out Schedule EIC and
attach it to your Form 1040 or Form 1040A. You cannot use Form 1040EZ. If
you answered “Yes” to questions 1 through 8 and “No” to question 9, see
Rule 9 to help you determine whether you can claim the EIC. If you answered
“Yes” to questions 1 through 7 and “No” to question 8, answer questions 10
through 12 to see if you can claim the EIC without a qualifying child.
PERSONS WITHOUT A QUALIFYING CHILD: If you answered “Yes” to questions 1
through 7, and 10 through 12, you can claim the EIC.
If you answered “No” to any question that applies to you: You cannot
claim the EIC.
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