What is the EIC?

According to the IRS, the EIC is a refundable tax credit for certain workers. The EIC was created in 1975 as an anti-poverty measure and work incentive.

However, many workers who qualify do not claim the EIC. In fact, each year millions of dollars remain unclaimed, meaning qualifying workers lose out on hundreds or even thousands of dollars to which they are entitled. We’ve listed the general rules and you may qualify so check it out. But remember, to qualify, you must follow all the rules.

Rule 1
Your adjusted gross income (AGI) must be less than:

• $34,458 ($35,458 married filing jointly) with more than one qualifying child
• $30,338 ($31,338 married filing jointly) with one qualifying child
• $11,490 ($12,490) if you do not have a qualifying child

Rule 2
You must have a valid social security number.
You (and your spouse if filing jointly) and any qualifying child must have a valid social security number to claim the EIC.

Rule 3
Your filing status cannot be “married filing separately”.
You may be able to file as head of household in certain situations, but make note: if your spouse is deployed overseas, head of household is most likely not the appropriate filing status - to avoid problems later be sure to check with your tax preparer.

Rule 4
You must be a U.S. citizen or resident alien all year.

Rule 5
You cannot file Form 2555 or Form 2555-EZ.

Rule 6
Your investment income must be $2650 or less.

Rule 7
You must have earned your income.
The EIC is so named because you (and/or your spouse, if filing jointly) must work and have earned income.

Rules to qualify a child

Rule 8
A qualifying child must meet three tests: relationship, age, and residency.

Relationship Test:

To be your qualifying child, a child must be your:

• Son, daughter, stepchild, adopted child, or a descendant (for example, your grandchild) of any of them, or
• Brother, sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them whom you cared for as you would your own child, or
• Eligible foster child (placed with you by an authorized placement agency and you cared for the child as you would your own).

Rule 9
Your qualifying child cannot be used by more than one person to claim the EIC. (One per customer.)

Rule 10
You cannot be the qualifying child of another person.

If you have no qualifying child you must also meet these rules:

Rule 11
You must be at least age 25 but under age 65.

Rule 12
You cannot be the dependent or qualifying child of another person.

Rule 13
You (and your spouse, if filing jointly) must have lived in the United States for more than half the year.

Look good so far? Need more detail?

Talk to your tax preparer or check out IRS Publication 596 - Earned Income Credit. It is a detailed (and unusually easy to understand) aid for preparing 2004 returns.

If you’ve reviewed the credit before, this year may be the time to look again as income caps have been adjusted. In addition, if you’ve attempted to claim the EIC before and were turned down, this is the time for you to look again as there are rules to help you too.

Good luck!