14 December 2009
The Earned Income Credit (EIC) is designed to help low-income workers continue working by reducing their federal income tax liability. As long as your income is below specified 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 tax credit is refunded to you. For 2009, that means you could get up to an extra $457 if you don't have any qualifying children, $3,043 if you have 1 qualifying child, $5,028 if you have 2 qualifying children, or $5,657 for 3 or more qualifying children - just for filing a tax return.

EIC Requirements

The tests to determine whether you qualify for the 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 $3,100 in 2009.
  • You can't file Form 2555 or 2555-EZ to exclude foreign source income.
  • Your earned income and adjusted gross income in 2009 must be less than $13,440 if you have no qualifying children ($18,440 Married Filing Jointly), $35,463 if you have 1 qualifying child ($40,463 Married Filing Jointly), $40,295 if you have 2 qualifying children ($45,295 Married Filing Jointly), or $43,279 if you have 3 or more qualifying children ($48,279 Married Filing Jointly).
  • You (or your spouse) can't be the qualifying child of another person.

Qualifying Children

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 eligible to be your dependent unless the child is married. (A married child must be eligible to be your dependent unless you're divorced or separated and have given up the right to claim the child as a dependent to the other parent.)

Age: The child must be younger than 19 at the end of the year unless the child is 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:
  1. You must be at least 25 and younger than 65 at the end of the year.
  2. You don't qualify as a dependent of another person.
  3. 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 $1,826 for tax year 2009. To see if you qualify for the Advanced EIC, complete the 5 questions on back of Form W-5, Earned Income Credit Advance Payment Certificate.

If you qualify, complete the bottom part of the Form W-5 and give it to your employer. Then, based on your income, your employer adds additional money to your take-home pay in each paycheck.

If your only income is from self-employment, you cannot qualify for advance EITC payments.

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Topic: Credits and Deductions