Earned Income Credit
To qualify for the Earned Income Credit (EIC), your
adjusted gross income must be less than $12,590 with no qualifying children, $33,241 with 1
and $37,783 with 2 or more.
A qualifying child must pass the relationship, age and residency tests.
If you have at least 1 qualifying child, receive part of the credit in each paycheck, with a maximum of $1,750.
The EIC is designed to help low-income workers continue working by reducing their income tax liability. As long as your income is below certain amounts and you meet certain other tests, you may qualify for this credit. Plus, the EIC is a refundable credit, meaning that once your tax gets down to $0, the rest of the credit is refunded to you.
For 2007, that means you could get an extra $428 if you don't have any qualifying children,
$2,853 if you have 1 qualifying child, or $4,716 if you have more than 1 qualifying child —
just for filing a tax return.
The tests to determine whether you qualify for EIC depend on whether you have 1 or more qualifying children. However, everyone must meet 8 tests:
- You must file a tax return, and you can't be Married Filing Separately.
- You must have a valid social security number.
- You must be a U.S. citizen or resident alien for the entire year.
- You must have earned income (income for which you performed services).
- If you have investments, your income from them can't be more than $2,900 in 2007.
- You can't file Form 2555 or 2555-EZ to exclude foreign source income.
- Your earned income and adjusted gross income in 2007 must be less than $12,590 if you have no qualifying children ($14,590 Married Filing Jointly), $33,241 if you have 1 qualifying child ($35,241 Married Filing Jointly), or $37,783 if you have more than 1 qualifying child ($39,783 Married Filing Jointly).
- You (or your spouse) can't be the qualifying child of another person.
A qualifying child must meet these 3 tests: relationship, age and residency.
Relationship: The child must be your son or daughter, grandchild, adopted child, stepchild
or eligible foster child. (To be an eligible foster child, the child must have been placed with
you by a qualified placement agency, or by judgment, decree, or other order of any court of
competent jurisdiction.) The child does not have to be your dependent unless they're married.
(A married child must be your dependent unless you're a dependent to the other parent.)
Age: The child must be younger than 19 at the end of the year unless they are a full-time student or permanently and totally disabled. Full-time students for at least 5 months of the year must be younger than 24; permanently and totally disabled individuals may be any age.
Residency: The child must have lived with you in your U.S. home for more than 6 months of the year. (Members of the U.S. Armed Forces who are out of the country on extended active duty are considered to be living in the U.S.)
Time away for temporary absences (for example, attending college) counts as time living with
you. A child who was born or died during the year meets the residency test as long as he or
she lived with you the entire time he or she was alive. Also, the child must have a social security
number that is valid for employment in the U.S.
Claiming the EIC without a Qualifying Child
If you meet the requirements above, but don't have a child who meets the relationship, age and residency tests, you must meet all of the following conditions to claim the EIC:
- You must be at least 25 and younger than 65 at year end
- You don't qualify as a dependent of another person.
- You must have lived in the U.S. for more than half the year.
The Advance EIC
If you have at least 1 qualifying child and expect to qualify for the EIC, the Advance EIC allows you to receive part of the credit in each paycheck during the year you qualify for the credit. The maximum Advance EIC an employer can give you throughout the year is $1,750 for tax year 2009.