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Understanding the Earned Income Credit (EIC): Eligibility and Benefits

The Earned Income Credit (EIC) is designed to reduce the tax burden for low-income working individuals and families, providing financial support that may exceed the amount owed in taxes. This refundable credit can offer up to $5,666 for eligible taxpayers. To qualify, individuals must have earned income from wages, salaries, or tips, and must have at least one qualifying child. Key eligibility rules include income limitations and residency requirements, as well as specific filing instructions for tax forms.

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Understanding the Earned Income Credit (EIC): Eligibility and Benefits

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  1. Lesson 30 Earned Income Credit

  2. Earned Income Credit • Purpose– reduce tax burden and supplement for the working low income. • Refundable – can get more than you owe • Maximum --$5666

  3. Earned Income • “EARNED” • Salaries, wages, tips and other taxable employee pay • No inmate pay • Page H-1 Resource Guide

  4. Investment Income • Interest and Dividends • If more than $3,100 –no EIC • Eligibility Rules pg H-3

  5. Advanced EIC • Not available in 2011 ---2010 is last year • Must have one child • Must complete W-5 • Box 9 on W-2 • Must file if you receive • Adds to the amount you owe

  6. Where reported • EARNED INCOME CREDIT • Resource Guide pg 6-1 line 66a(1040) • Page 16 Line 41a 1040A instructions • Page 12 Line 9a 1040EZ instructions • ADVANCED EIC • Resource Guide pg 6-1 line 61 • 1040A Line 36 • 1040EZ can’t use – have to have a child

  7. Who gets itResource Guide pg H-2 • Must have SS# • Must be a citizen or resident alien • Cannot be a qualifying child • Cannot be MFS • No Form 2555 (Foreign earned income) • No investment income over $3,100

  8. If you have a child • Must be a qualifying child • Child can only be claimed by one person • Isn’t parent then qualifying child • If both use the kid than whom the child lived the longest • Highest AGI will get the EIC for debates

  9. Adopted Child • Must have SS #. Can file amended when rec’d

  10. If you don’t have a child • 25-65 • Not a dependent • 6 months or more in USA

  11. Income Limitations

  12. Both Earned Income and Adjusted Gross Income must be below the maximum amount.

  13. Disallowance • Can be denied due to reckless or intentional disregard – 2 years • If fraud – denied for 10 years

  14. Let’s review • Page 30-4 Exercises • Example pg 30-4 • Page 30-6 Exercises

  15. Determine the amount of EIC • EIC Tables

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