The Earned Income Credit (EIC), also sometimes referred to as the Earned Income Tax Credit (EITC) is a tax credit that is refundable. It was established to help low income earners as well as to offset the burden of U.S. payroll taxes. The earned income credit can be described as being a “federal program by which low wage earners can receive more in income tax refunds than they paid into the system.” The EIC is thought to be a wage subsidy for low income employees. It is often considered by many individuals to be one of the “most successful anti-poverty tools” in the country.
The EIC is a refundable tax credit that was created to help lower income individuals as well as lower income working families. The amount of credit you are given varies from one individual (or one family) to another and is connected to your income and how many dependents you are supporting. In some cases the tax credit can lead to a greater tax refund than is the amount of tax that is paid in by way of withholding. For the years 2009 until 2012 the EIC has been increased for families that have three or more dependents. In the past the earned income credit maxed out for those families with two dependents. This is only a temporary increase that will drop back down in 2013.
If you would like to apply for the earned income credit but are not sure that you are eligible for it then the best way to find out is to use the application that is provided on the IRS website. Look for the EITC Assistant at the website. There are different applets for the various tax years so make sure that you choose the proper year.
Eligibility requirements for the EIC are such that your earned income as well as your adjusted gross income must be within a particular range. To determine how much of a tax credit you qualify for the government will look at your earned income and also how many qualifying children that you are supporting.
If you would like to apply for the earned income credit then you need to know that the rules for qualifying children are not the exact same as are the rules governing dependents. For instance your child may qualify as a dependent but may not qualify to be claimed for the earned income credit. It is also possible that your child might qualify you to receive the earned income credit even if your former spouse, the non-custodial parent, claims the child as a dependent.
This can all seem very confusing which is why you must be clear on what a qualifying child is and a qualifying dependent is before you apply for the earned income credit. The rules that determine whether a child is eligible to be considered a qualifying child for the EIC include an age test, a relationship test, a residence test and a joint return test.
If you would like to claim a child in this respect then you must attach Schedule EIC to Form 1040 when you file your tax return. Visit the IRS website to learn more about what a qualifying child necessitates.
Taxpayer Requirements for the EIC
In order to be eligible for the EIC you must have a valid Social Security Number (SSN). You must also be an American citizen or a resident alien for at least one year’s time before you applied for the credit. If married you and your spouse must be between the ages of 25 and 64. You are not permitted to use the married filing separately filing status. If married you and your spouse cannot be claimed as a qualifying child by another taxpayer. You are not permitted to claim the foreign earned income exclusion which is connected with living abroad.