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 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 or was denied the credit for earlier acts of fraud or recklessness during the disallowing period.

Persons without a qualifying child, who meet the following requirements, may claim an EIC of up to $332.

1. You must have received "earned income" during the year,
2. Your earned income and modified adjusted gross income must each be less than $9,770,
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. Your filing status can be any status except married filing separately,
6. You (or your spouse, if filing a joint return) cannot be a qualifying child of anyone else,
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; and
8. You are not filing Form 2555 or Form 2555EZ, Foreign Earned Income Exclusion.

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 $2,210 with one qualifying child, $3,656 with two qualifying children:

1. You must have received "earned income" during the year,
2. Your earned income and modified adjusted gross income must each be less than the following amounts:
• $25,760 with one qualifying child, and
• $29,290 with more than one qualifying child,
3. You (or your spouse, if filing a joint return) cannot be a qualifying child of another,
4. Your filing status can be any status except married filing separately,
5. Only the person with the higher modified adjusted gross income may be eligible for the credit, if you and someone else have the same qualifying child,
6. You must have a qualifying child living with you in the United States for more than half the year (the whole year, if an eligible foster child),
7. You usually must claim as a dependent a qualifying child who is married; and
8. You are not filing Form 2555 or Form 2555EZ, Foreign Earned Income Exclusion.

You must have "earned income" in order to claim the EIC. Some examples of earned income for EIC purposes 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.

For Form 1040EZ and Form 1040A filers, your modified adjusted gross income and your adjusted gross income are the same. For Form 1040 filers, your modified adjusted gross income is your adjusted gross income plus certain losses. For more information on this, order Publication 596, Earned Income Credit.

A qualifying child is your child, grandchild, or stepchild, and may be an adopted or foster child. The child must have a valid social security number. A child without a social security number, or one who has an individual taxpayer identification number, is not a qualifying child. The child must be either under the age of 19, or under age 24 and a full time student, or any age if permanently and totally 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. 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.

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 1998, you may be able to receive part of the credit for 1998 in advance during the year. To see if you qualify to receive advance EIC, refer to Topic 604.

You can order forms and publications by calling 1-800-829-3676, or download them from this web site.

Tax Topics & FAQs | Tax Help Archives | Home