What are the Earned Income Credit Qualifications?
The earned income credit is one of the most valuable credits for those with low or moderate incomes. To claim it you will need to file an income tax return, even if you don’t necessarily owe anything in taxes.
There are a number of qualifications involved. So, if you plan to claim the Earned Income Credit, here’s what you need to know.
Table of Contents
- 1 What is the Earned Income Credit (EIC)?
- 2 Will You Qualify for the EIC?
- 3 What are the Adjusted Gross Income Limits for the EIC?
- 4 What are the Rules for Qualifying Children?
- 5 What’s the Process for Filing for the EIC?
- 6 How to File Taxes Online in 3 Simple Steps - TurboTax Tax Tip Video
What is the Earned Income Credit (EIC)?
The EIC is a type of tax credit available to taxpayers earning either a low or moderate salary. For the tax year, the credit will be worth a maximum of $6,660.
It’s a tax credit not a tax deduction, so the EIC will reduce the amount of tax you owe directly, rather than your taxable income.
The philosophy behind the EIC is to counter social security taxes paid by taxpayers with lesser means.
Will You Qualify for the EIC?
The EIC has a range of qualifications attached, but they are quite simple to understand. If you meet the following qualifications, you will be eligible to claim the EIC:
- Your filing status must either be single or married but filing jointly.
- You must have a form of earned income either through a job or through self-employment.
- You can’t earn more than $3,650 in investment income.
- You aren’t allowed to file Form 2555 or 2555-EZ, which are both designed for those claiming foreign earned income and exclusions.
However, if you are a member of the military or the clergy there are special rules attached. Additionally, there are special rules for people with disabilities and people who have children with disabilities.
What are the Adjusted Gross Income Limits for the EIC?
The adjusted gross income limits are determined by your filing status and the number of qualifying children you have.
For single filers the limits are:
0 Children – $15,820
One Child – $41,756
Two Children – $47,440
Three or More Children – $50,594
For taxpayers who are married and filing jointly the limits are as follows:
0 Children – $21,710
One Child – $47,646
Two Children – $53,330
Three or More Children – $56,844
The number of children will also influence the maximum credit amount for the EIC. You can only claim the full $6,660 if you have three or more qualifying children. If you have no children, the maximum amount is $538.
The maximum limits are $3,584 and $5,920 for one and two qualifying children respectively.
What are the Rules for Qualifying Children?
Your child must qualify in order to be eligible for EIC purposes. The following criteria must be true:
- Your child must have a Social Security Number.
- You must have a relationship with the child, whether they are your biological child, grandchild, adopted child, or stepchild.
- At the end of the tax year the child must be under the age of 19. They can be under the age of 24 if they are a full-time student.
- There are no age limits if the child qualifies as totally and permanently disabled.
- The child must live with you or a spouse in the US for at least six months of the year.
- Your child hasn’t been claimed by another taxpayer.
What’s the Process for Filing for the EIC?
You need to file an income tax return with the Federal government to claim the EIC. You will need to fill out and attach Schedule EIC to your tax return.
On Schedule EIC you will enter the information regarding your qualifying children.
The IRS has guidance and worksheets to help you work out how much of the EIC you can claim. Your calculations should then be added to the Form 1040.
Before you begin working out how much you can claim, you should have the personal and Social Security information of yourself and any qualifying children. You must also have any statements detailing any income you have received in the past year. This includes any type of investment income.
If you have any childcare expenses for dependent children, this will also become a factor.
Finally, did you get a previous EIC claim rejected? If you believe this is in error, you can appeal through Form 8862.
With such a valuable credit at stake, it’s well worth going through the filing process to figure out how much you can claim when you file your taxes.
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Frank Ellis is a Traverse City Tax Preparation Planner and published author. He has written tax and finance related articles for twelve years and has published over 1000 articles on leading financial websites.