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Earned Income Tax Credit (EITC)

The Federal Earned Income Tax Credit (EITC), sometimes called the Earned Income Credit (EIC), is a tax credit for certain people who work and have earned income. If you are married and file a joint return, you may also be eligible if at least one spouse worked and had earned income. The credit, created in 1975, is intended to offset the cost of Social Security taxes and to provide an incentive to work.

The EITC is a "refundable" credit worth up to $4,824 (with two children) for the 2008 tax year. "Refundable" means that if you owe less than your credit amount, you will receive the difference as a payment from the Internal Revenue Service (IRS). For example, if you owed $2,000 in Federal Income taxes and were due the full $4,824 EIC, you would get a check for $2,824 as a refund when you filed your tax return. If the $2,000 had already been deducted from your pay checks, then you would get a refund check of $4,824.

To qualify, a taxpayer must work and have earned income. Earned income can be income from wages, salaries and tips, strike benefits paid by a union or net self-employment earnings. Earned income also can be disability payments paid by an employer’s plan if you retired on disability prior to retirement age. Investment income must be $2,950 or less during tax year 2008.

If you are single with no qualifying children, you must be at least 25 and under 65 at the end of the tax year for which you are claiming the credit. If you are married with no qualifying children, either you or your spouse must be at least 25 and under 65 at the end of the tax year. It does not matter which spouse meets the age test, as long as one of the spouses does. Whether single or married, with or without qualifying children, neither you nor your spouse may be the qualifying child of another person.

Note that all amounts change annually.

Advanced Earned Income Tax Credit (AEITC)

Note that if you have at least one qualifying child living with you then you can elect to receive estimated EITC payments in advance through your pay checks by arranging for that option with your employer. You must file Form W-5, Earned Income Credit Advance Payment Certificate, with your employer to receive the advance payments. The employer then pays part of the credit to you in advance throughout the year. You claim the rest when filing your Federal tax return.

The Advance Earned Income Tax Credit (AEITC) for tax year (TY) 2008 maximum credit the employer is allowed to provide throughout the year with the employees pay is $1,750.

Income Limits and Credit Amounts

If you have no qualifying children, then you may receive an EITC benefit if your earned income and Adjusted Gross Income (AGI) is less than a specified amount ($12,880 in tax year 2008). If you have one qualifying child, then the upper limit is $33,995 in tax year 2008. For more than one qualifying child, the amount is $38,646 for tax year 2008. These amounts are increased by $3,000 if you are married and filing jointly. The maximum credit in tax year 2008 is $438 with no qualifying children, $2,917 with one qualifying child, and $4,824 with two or more qualifying children.

In tax year 2007, your earned income and adjusted gross income each had to be less than:

·                   $37,783 ($39,783 married filing jointly) with two or more qualifying children;

·                   $33,241 ($35,241 married filing jointly) with one qualifying child;

·                   $12,590 ($14,590 married filing jointly) with no qualifying children.

The maximum credit you could claim in tax year 2007 was:

·                   $4,716 with two or more qualifying children;

·                   $2,853 with one qualifying child;

·                   $428 with no qualifying children.

Interaction of EITC and other benefit programs

Under Federal rules, the EITC (including advance payments) will not be counted as income for the programs listed below. That is, the EITC and advance EITC payments you receive will not be used to determine whether you are eligible for the following benefit programs, or how much you can receive from these programs:

·                   Temporary Assistance for Needy Families (TANF).

·                   Medicaid and Supplemental Security Income (SSI).

·                   Food Stamps.

·                   Low-income housing.

·                   Supplemental Security Income (SSI).

NOTE: The EITC can count as a resource in determining eligibility for Food Stamps if it is not spent within 12 months of receiving the refund.

NOTE: On July 18, 2005, SSA issued Final Rules amending the SSI regulations by making technical revisions to rules on income and resources based on the Social Security Protection Act (SSPA) of 2004 and several other statutory changes. These revisions, among other things, clarify that certain types of income are excluded when determining SSI income and resources. Any unspent portion of Federal income taxes related to an Earned Income Tax Credit (EITC) is excluded from resources for a time period of 9 months following the month of receipt.
For more information see:
http://www.ssa.gov/regulations/articles/rin0960_ae79f.htm

Additional Information

For more information on the EIC, see IRS Publication 596. You can call 1-800-829-3676 to request that a copy be sent to you in the mail. You can also download an electronic version of this and other IRS publications from the IRS Web site at this URL: http://www.irs.gov/formspubs/index.html

A number of States have EITC programs that operate in addition to the Federal program. For additional information, see the State EITC Online Resource Center website at:
http://www.stateeitc.com/

The Internal Revenue Service maintains a website with an overview of EITC at:
http://www.irs.gov/individuals/article/0,,id=96406,00.html

The EITC Assistant is a convenient way for you to find out if you are likely to qualify for the EITC tax credit by answering questions online, about yourself, your children, your living situation, and your income. You will see the results of the eligibility check right away, on your computer screen. The Assistant can be used by individuals, tax practitioners, employers, community and public service organizations, and IRS partners. It is available in both English and Spanish online at:
http://www.irs.gov/individuals/article/0,,id=130102,00.html

"Living and working with Disabilities" is an IRS LifeCycle Tax Benefits and Credit brochure. It provides basic information about existing tax credits and benefits that may be available to qualifying taxpayers with disabilities, parents of children with disabilities, and businesses or entities wishing to accommodate persons with disabilities. It is available in PDF format (requires Adobe Acrobat Reader) at:
http://www.irs.gov/pub/irs-pdf/p3966.pdf

"Tax Highlights for Persons with Disabilities" (IRS Publication 907) is updated annually for use in preparing each year's tax returns. The publication gives you a brief introduction to certain parts of the tax law of particular interest to people with disabilities and those who care for people with disabilities. It includes highlights about Income, Itemized deductions, Tax credits, Household employees, and Business tax incentives. It is available in PDF format (requires Adobe Acrobat Reader) at:
http://www.irs.gov/pub/irs-pdf/p907.pdf

See also

EITC Qualifying Children

Source

Information for this topic was drawn from:
http://www.irs.gov/pub/irs-pdf/p596.pdf
http://www.irs.gov/newsroom/article/0,,id=129991,00.html
http://www.irs.gov/individuals/article/0,,id=150513,00.html

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