The earned income credit, or EIC is a refundable credit that certain workers may be eligible to receive if they have "earned income", such as wages, and meet certain other eligibility requirements. Persons with or without a qualifying child may qualify for the credit. However, you cannot claim the earned income credit if you have investment income of more than $2,350. Likewise, you cannot claim earned income credit if you are a nonresident alien, who is not married to a United States Citizen or resident, and is not taxed as a resident.

Persons without a qualifying child, who meet the following requirements, may claim an EIC of up to $323.

1.You must have received "earned income" during the year;

2.Your earned income and adjusted gross income must each be less than $9,500;

3.You (or your spouse, if filing a joint return) must be at least 25 years old, but less than 65 at the end of your tax year;

4.You ( or your spouse, if filing a joint return) cannot be eligible to be claimed as a dependent on anyone else's tax return;

5.You cannot file as married filing separately, even if you are married;

6.You ( or your spouse, if filing a joint return)cannot be a qualifying child of anyone else; and

7.Your main home (and your spouse's main home, if filing a joint return) must be in the United States for more than half the year.

The other criteria are for people with one or more qualifying children. If they meet the following requirements, they may claim an EIC of up to $2,152 with one qualifying child, $3,556 with two qualifying children:

1.You must have received "earned income" during the year;

2.Your earned income and adjusted gross income must each be less than the following amounts: $25,078 with one qualifying child, and $28,495 with more than one qualifying child;

3.You cannot be a qualifying child of another;

4.You cannot file as married filing separately, even if you are married;

5.Only the person with the higher adjusted gross income may be eligible for the credit, if you and someone else have the same qualifying child; and

6.You must have a qualifying child living with you for more than half the year (the whole year, if an eligible foster child).

You must have "earned income" in order to claim the EIC. Some examples of earned income for EIC purpose are wages, salaries, tips, and net earnings from self-employment. Earned income can also include nontaxable employee compensation such as tax-deferred contributions to employee benefit plans (a 401(k) plan, for example), basic quarters and subsistence allowances for military personnel, and voluntary salary reductions as under a cafeteria plan. Earned income does not include welfare benefits, unemployment compensation, pensions, workers' compensation benefits, or social security benefits.

A qualifying child is your child, grandchild, or stepchild, and may be an adopted or foster child. The child must be either under the age of 19, or under age 24 and a full time student, or any age if disabled. Generally the child must have lived with you for more than half the year, or for the entire year if a foster child. The home must be located in the United States. However, starting in 1996, military personnel stationed outside the United States on extended active duty are considered to live in the United states for EIC purposes. In addition, children born before December 1, 1996 must have an identification number or a social security number. If you and your qualifying child share a home with your parents or another adult during the year, you may not be eligible for the earned income credit. More information on the EIC eligibility requirements can be found in Publication 596, Earned Income Credit.

You can also use the instructions for Form 1040, 1040A, or 1040EZ to help you determine if you are eligible for the EIC. There is a worksheet in the instructions to help you figure your credit, or, if you prefer, the IRS will figure the credit for you. To allow the IRS to figure the credit, carefully follow the steps provided in the instructions.

If you have one or more qualifying children, you must fill out Schedule EIC and attach it to your Form 1040 or 1040A, since the Form 1040EZ cannot be used when filing with a qualifying child.

If you expect to qualify for the EIC for 1997, you may be able to choose to receive part of the credit for 1997 in advance during the year. To see if you qualify to receive advance EIC, refer to Topic 604.

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