Eligibility

The Earned Income Tax Credit (EITC) is designed to assist people with limited incomes by reducing the amount of federal income tax they owe. Even those who don’t earn enough money to owe federal income taxes may be eligible for an EITC.

The credit can be claimed when filing your annual federal tax return. For tax year 2012 (filing by April 2013), the EITC ranges from $475 to $5,236, depending on your adjusted gross income and the number of qualifying children in your family. There is no limit to the number of times you can claim an EITC; you can claim one every year that you are eligible.

The EITC program was established in 1975 and is administered by the Internal Revenue Service (IRS). Savings to those who qualify can be significant. Approximately 22.7 million families claimed Earned Income Tax Credits totaling $42.6 billion in tax year 2005.

Program Eligibility

To be eligible for the Earned Income Tax Credit you must meet several criteria:

• You must meet adjusted gross income requirements (see table above).
• You must have earned income from employment, self-employment or employer-paid disability benefits received prior to retirement.
• You must have a Social Security Number valid for employment.
• You cannot file your taxes as “married filing separately.” If you’re married, you must file a joint tax return.
• You must be a U.S. citizen or legal resident. If you’re a nonresident alien, you must be married to a U.S. citizen or legal resident and filing a joint tax return.
• You must live in the U.S. for more than half of the year.

Age Requirements:

• If you are claiming qualifying children, you can be any age.
• If you’re not claiming a qualifying child, you must be 25-64 years of age.

Additional requirements:

• You cannot claim foreign income or a foreign housing deduction using Form 2555 or 2555EZ.
• You must not have investment income that exceeds $2,900 (for tax year 2012).
• You cannot be the dependent of another person.
• You cannot be the qualifying child of another person.

More on Earned Income

To qualify for an EITC, you must receive earned income. This can include your wages, salaries, tips, net earnings from self-employment, or any other form of taxable pay. You can also elect to include nontaxable combat pay as earned income.

Employer-paid disability payments received prior to retirement are considered earned income under the EITC program. But benefit payments received from a policy you paid the premiums for, or that you received post-retirement, would not be considered earned income.

Other items that do not qualify as earned income under the EITC include:

• interest and dividends
• Social Security and railroad retirement benefits
• pensions and annuities
• alimony and child support
• workers’ compensation benefits
• unemployment compensation
• welfare benefits
• veterans’ benefits

If you are married and filing jointly, at least one spouse must receive earned income to be eligible for an EITC.

Adjusted Gross Income

In addition to the earned income requirement, you must have an adjusted gross income (AGI) below certain levels to qualify for an EITC.

Your adjusted gross income (AGI) includes all earned income before deductions for taxes, health care or other expenses, minus certain business, education-related, and other expenses. While filling out your annual tax return (IRS Forms 1040, 1040A, or 1040EZ), you will be asked a series of questions that will allow you to determine what your AGI is.

Adjusted Gross Income and Qualifying Children

For a child to be considered a qualifying child under EITC, several requirements must be met:

• Relationship: The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendent of any of these (e.g. – your grandchild, niece, or nephew)
• Residence: The child must live at the same residence as the taxpayer for more than half the year and have a valid Social Security number.
• Age: At the end of the tax year, the child must be under 19. Or, if attending school full-time, the child must be under 24. The only exception is for individuals who are permanently and totally disabled. If the taxpayer’s child is permanently and totally disabled, there is no age requirement.
  
  According to the IRS, a person is considered “permanently and totally disabled” if their condition is expected to last continuously for at least one year or is expected to result in death, and if they cannot perform any Substantial Gainful Activity (SGA). For tax year 2012, this means they cannot work and earn more than $900 per month.

Note: Qualifying children can only be used by one family member to claim an EITC.

If you don’t have any qualifying children, the maximum adjusted gross income you can have and still qualify for an EITC is $13,980 ($19,190 for a couple).

With one qualifying child, your AGI can be up to $36,920 ($42,130 for a couple). With two or more qualifying children, you can have an AGI of up to $41,952 ($47,162 for a couple).

Sources

If you are eligible for an EITC, you can receive free tax preparation assistance through Volunteer Income Tax Assistance (VITA) sites. The Franchise Tax Board has a VITA site search to help you find a site in your area.

IRS Publication 596 is a comprehensive guide to the EITC. It includes information on program rules, calculating and claiming an EITC, Advance Payment of EITC, rules regarding qualifying children, and sample worksheets.

The National League of Cities provides an EITC Toolkit that includes comprehensive information on the EITC program.