EIC: Earned Income Tax Credit EITC

The Earned Income Tax Credit is a credit that is intended to help people who earn modest incomes. It is a refundable tax credit for low-income families and individuals that varies depending on your level of income and how many dependents you support. The tax credit can even result in a tax refund larger than the amount you paid in through withholding tax.

The credit has a variable phase out range that reduces the credit as income increases. This range is based on filing status as indicated below.

Married filing joint return with children: $21,420 to $40,463 for one child, $45,295 for two children and $48,279 for three or more children.

Married filing joint return with no children:

$12,470 to $18,440.

To be eligible for the 2010 EIC, both earned income and adjusted gross income (AGI) must each be less than the following amounts:

$38,646 ($41,646 married filing jointly) with two or more qualifying children;
$33,995 ($36,995 married filing jointly) with one qualifying child; or
$12,880 ($15,880 married filing jointly) with no qualifying children.

The American Recovery and Reinvestment Act (ARRA) provides for a temporary increase in the earned income tax credit (EITC) for taxpayers with three or more qualifying children. ARRA also increases the beginning point of the phase-out range for all married couples filing a joint returns, regardless of the number of children. The maximum EITC for this new category is $5,657. These changes apply to 2010 and 2011 tax returns.

To find out if you qualify for the earned income credit, use an application found on the IRS Web site called the EITC Assistant. Select the correct year for your tax filing at. www.irs.gov/individuals/article/0,,id=130102,00.html

Qualifying Child:

Children must be age 18 or younger at the end of the year, or be age 23 or younger and a full-time student. If you care for a person who is totally and permanently disabled, you can claim this person for the Earned Income Credit regardless of the person's age.

Residency:

The child must have lived with you for more than half the year, in the United States. Your child must have a valid Social Security Number, individual tax identification number (ITIN), or adoption tax identification number (ATIN) to claim the Earned Income Credit.

Finally, you cannot claim the earned income tax credit if your filing status is Married Filing Separately. However, if you and your spouse are separated and your spouse did not live with you at any time during the last 6 months of the year, you can file as Head of Household and claim the Earned Income Credit.

A qualifying child must pass the relationship, age and residency tests.

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 the end of the year.
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 2010.