Overview

If you meet certain conditions, you may be eligible for a special tax credit when filing your federal income taxes. This page explains the earned income tax credit and will help you determine if you have the right qualifications.

Publication 596, Earned Income Credit

For in-depth information about the Earned Income Credit, you may want to consult IRS' newly redesigned and expanded Publication 596. Download the complete publication in PDF

EITC Information for Employers

Find out how to provide your employees with information about the EITC and how the Advance EITC can provide them with more take home pay at virtually no cost to you.

EITC Information for Tax Professionals

Contains information about due diligence requirements and EITC promotional/informational materials you may wish to order.

EITC 2000 Tax Professional Kit

(Pub. 3107, rev.11/99) contains information for return preparers, including guidance to help you determine the eligibility of your clients, due diligence responsibilities, and answers to frequently asked questions.

Health Care For Kids

Children in lower-income families may be eligible for free or low-cost health insurance. For more information about these programs in your state, including toll free phone numbers, visit these links:

• Children's Health Insurance Program (CHIP)
• Medicaid for Childern

Missing Children

The IRS is partnering with the National Center for Missing & Exploited Children (NCMEC) to help search for missing children. For more information:

See IRS news release IR-1999-85.

• Visit the NCMEC website.
• Call NCMEC at 1-800-843-5678.

Earned Income Tax Credit (EITC) Questions and Answers

Q. What is the Earned Income Tax Credit (EITC)?

A. The EITC is a special credit for certain persons who work. The credit reduces the amount of tax you owe (if any) and is intended to offset some of the increases in living expenses and social security taxes.

Q. Who can claim the credit?

A. To claim the EITC on your 1999 tax return, you must meet all of the following rules:

1. You must have earned income during the year.
2. Your earned income and modified AGI must each be less than:
   • $10,200 if you have no qualifying children, or;
   • $26,928 if you have one qualifying child, or;
   • $30,580 if you have more than one qualifying child.
3. Your investment income cannot be more than $2,350.
4. Your filing status can be any filing status EXCEPT married filing a separate return.
5. You cannot be a qualifying child of another person. If you are filing a joint return, neither you nor your spouse can be a qualifying child of another person.
6. Your qualifying child cannot be the qualifying child of another person whose modified AGI is more than yours.

Additionally, to claim the EITC, you must have a Social Security Number (SSN) for you, your spouse (if filing a joint return), and your qualifying child.

A SSN is a number issued by the Social Security Administration to a U.S. citizen or to a person who has permission from the Immigration and Naturalization Service to work in the United States.

You cannot get the earned income tax credit if the SSN was issued solely for use in applying for or receiving federally funded benefits.

You cannot get the credit if, instead of an SSN, you, your spouse, or your qualifying child has:

• An Individual Taxpayer Identification Number (ITIN), which is issued to a noncitizen who cannot get an SSN, or;
• An Adoption Taxpayer Identification Number (ATIN) which is issued for a child to adopting parents who cannot get an SSN for the child being adopted until the adoption is final.
  

Q. What if I was denied EITC last year?

A. If you received a notice of deficiency denying your earned income credit for a previous year and you want to claim the EIC for 1999, you need to complete Form 8862, Information to Claim Earned Income Credit After Disallowance, and attach it to your 1999 tax return.

Q. Who is a qualifying child?

A. Basically, a qualifying child is a child who:

1. Is your son, daughter, adopted child, grandchild, stepchild, or eligible foster child, and;
2. Was (at the end of the tax year) under age 19 or under age 24 and a full-time student, or; permanently and totally disabled at any age during the year; and
3. Lived with you in the United States for more than half of the tax year (all of the tax year if the child is your eligible foster child).
   

Q. What is Earned Income?

A. Earned income includes all the income and wages you get from working -- even if it is not taxable.

There are two ways to get earned income:

1. You work for someone who pays you, or;
2. You work in a business you own.

Taxable earned income includes:

• Wages, salaries, and tips;
• Union Strike benefits;
• Long-term disability benefits received prior to minimum retirement age;
• Net earnings from self-employment.

Nontaxable earned income includes:

• Salary deferrals (example: 401 (k) plan);
• Military combat zone pay;
• Basic housing and subsistence allowances and in-kind housing and subsistence for the U.S. Military;
• Value of meals or lodging provided by an employer for the convenience of the employer;
• Housing allowance or rental value of a parsonage for the clergy;
• Excludable benefits provided by the employer such as dependent care, educational benefits, adoption benefits, and salary reductions, such as under a cafeteria plan.
  

Q. What is Modified AGI?

A. Modified AGI (adjusted gross income) for most people filing Form 1040, 1040A, or 1040EZ is the same as AGI. But, if you are filing Schedule C, C-EZ, D, E, or F, or you claim a loss from the rental of personal property not used in a trade or business, your modified AGI is the amount on Form 1040, line 33, plus the total of the following amounts:

1. Any loss claimed on Form 1040, line 13;
2. Any loss claimed on Schedule E, line 36;
3. Any royalty loss claimed on Schedule E, line 26;
4. Three-fourths of each of the following losses:
   • Any loss on Form 1040, line 12;
   • Any loss for Form 1040, line 18;
   • Any loss determined by combining any rental real estate income or (loss) included on Schedule E, line 26, and the amounts on lines 31 and 39 of that schedule.
5. Any loss from the rental of personal property not used in a trade or business (the amount by which the expenses for the rental deducted as an adjustment to line 32, Form 1040, are more than the income from the rental included on line 21, Form 1040).
6. Any tax-exempt interest shown on line 8b; and
7. The nontaxable part of a pension, annuity, or individual retirement arrangement (IRA) distribution, except any amount that is nontaxable because it was a trustee-to-trustee transfer or a rollover distribution.
   

Q. How do I figure my credit?

A. Once you know that you qualify for the EITC, you need to know how to figure the amount of the credit. You have two choices of how to figure the credit:

1. Have the IRS figure the credit for you. If you would like the IRS to do this, see Publication 596, Earned Income Credit, or
2. Figure the credit yourself. To do this you must use the Earned Income Credit Worksheet (EIC Worksheet) in the instruction booklet for Form 1040, Form 1040A, or Form 1040EZ, and the Earned Income Credit (EIC) Table in the instruction booklet.

For more information, see How to Figure the Credit Yourself in part D of Publication 596.

Q. Where can I get more information?

A. Publication 596, Earned Income Credit, explains the rules to qualify for and to claim the EITC and Advance EITC.

A free copy of IRS forms and/or publications is available for download or by calling the Internal Revenue Service at 1-800-829-3676.

See Publication 910, Guide to Free Tax Services, for a list of free tax publications.

Q. What is the Advance Earned Income Tax Credit (Advance EITC)?

A. The Advance EITC allows those taxpayers who expect to qualify for the Earned Income Tax Credit (EITC) and have at least one qualifying child to receive part of the credit in each paycheck during the year the taxpayer qualifies for the credit.

Q. Why should I be interested in the Advance EITC?

A. If you are working and

1. you expect your 2000 income will be below approximately $27,000,
2. you expect to have at least one qualifying child, and
3. you expect to qualify for EITC,

you can choose to get part of the credit with your paycheck. This year you may receive up to $1,412 with your paycheck if you are eligible for Advance EITC.

Q. How do I get Advance EITC payments?

A. See if you qualify for the Advance EITC payments by completing the five questions on the back of 2000 Form W-5, Earned Income Credit Advance Payment Certificate, available here or through your employer.

If you qualify, complete the bottom part of the Form W-5 and give it to your employer. Then, based on your income, your employer adds additional money to your take-home pay in each paycheck.

If your only income is from self-employment, you cannot qualify for Advance EITC payments.

Q. Could my Advance EITC payments change?

A. Yes, if during the year, your income rises above the dollar limit, or you no longer qualify for the EITC, you need to fill out a new Form W-5 and give it to your employer to stop the advance payments.

If you no longer qualify for the Advance EITC, you will have to repay all advance EITC money when you file your tax return.

Q. If I get Advance EITC do I have to file a tax return?

A. Yes. If you receive the Advance EITC, you must file a tax return. This will show the IRS the payments you received and will allow you to claim any extra credit you may be entitled to.

Q. Where can I get more information on EITC and Advance EITC?

A. Publication 596, Earned Income Credit, explains the rules to qualify for and to claim the EITC and Advance EITC.

A free copy of IRS forms and/or publications is available for download or by calling the Internal Revenue Service at 1-800-829-3676.

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