The following two comprehensive examples (complete with filled-in forms) may be helpful when figuring the earned income credit. The two examples are:

1. John and Janet Smith with one qualifying child and using Form 1040A, and
2. Kelly Green, age 30, a student, with no qualifying child, and using Form 1040EZ.

Example 1. John and Janet Smith (Form 1040A)

John and Janet Smith are married and will file a joint return. They have one child--Amy, who is 3 years old. Amy lived with John and Janet for all of 1998. John worked and earned $9,500. Janet worked part of the year and earned $1,500. Their total earned income and modified AGI is $11,000. John and Janet qualify for the earned income credit and fill out the EIC Worksheet and Schedule EIC. The Smiths will attach Schedule EIC to Form 1040A when they send their completed return to the IRS.

They took the following steps to complete Schedule EIC and the EIC Worksheet.

Completing Schedule EIC

The Smiths complete Schedule EIC because they have a qualifying child. They enter "John and Janet Smith" and John's SSN (the SSN that appears first on their Form 1040A) on the line at the top of Schedule EIC. The Browns fill out Information About Your Qualifying Child or Children (lines 1-6).

Line 1. The Smiths enter the first name and last name for Amy in the column "Child 1. "

Line 2. They enter the year of birth for Amy (1995).

Lines 3a and 3b. The Smiths skip these lines because Amy was born after 1978.

Line 4. They enter Amy's SSN. See rule A-4, Social Security Number (SSN), earlier.

Line 5. The Smiths enter "Daughter" for Amy. This column shows Amy's relationship to John and Janet.

Line 6. The Smiths enter "12" for Amy. This is how many months Amy lived with them in 1998.

Completing the EIC Worksheet

In Step 1 the Smiths completed Schedule EIC with information about their qualifying child. Next, they will complete the EIC Worksheet to figure their earned income credit amount.

Line 1. The Smiths enter $11,000 from Form 1040A, line 7.

Line 2. The Smiths leave this line blank because they did not have any taxable scholarships or fellowship grants.

Line 3. Because line 2 is blank, the Smiths enter the $11,000 from line 1.

Line 4. The Smiths leave this line blank because all their income is taxable.

Line 5. They add lines 3 and 4 together and enter $11,000.

Line 6. The Smiths are ready to see how much of a credit they can get. They go to the Earned Income Credit Table in the Form 1040A instructions. The Smiths find their income of $11,000 (from the EIC Worksheet, line 5) within the range of $11,000 to $11,050. They follow this line across to the column "One child" and find $2,271 and enter it on this line 6.

Line 7. The Smiths enter their modified AGI of $11,000. This amount is from Form 1040A, line 18.

Line 8. Because their earned income of $11,000 is less than $12,300, they check the box for YES and got to line 9.

Line 9. The Smiths read the instructions for line 9. Because they checked YES on line 8, they enter the amount from line 6 on line 9 and also on Form 1040A, line 37a. The $2,271 is their earned income credit.

Schedule EIC and Worksheet-Smith

Example 2. Kelly Green (Form 1040EZ)

Kelly Green is age 30 and a full-time student. She lived with her parents in the United States for all of 1998. She had a part-time job and earned $6,040. She earned $20 interest on a savings account. She is not eligible to be claimed as a dependent on her parents' return. Although she lived with her parents, she is not their qualifying child because she does not meet the age test. She does not have any children.

Kelly qualifies for the earned income credit. Kelly will file Form 1040EZ and complete the EIC Worksheet.

Completing the EIC Worksheet

Kelly figures the amount of her earned income credit on the EIC Worksheet as follows.

Line 1. She enters $6,040 from Form 1040EZ, line 1.

Line 2. Kelly leaves this line blank because she did not receive any taxable scholarships or fellowship grants.

Line 3. Kelly subtracts line 2 from line 1 and enters $6,040.

Line 4. Kelly leaves this line blank because all her income is taxable.

Line 5. She adds lines 3 and 4 and enters $6,040. This is her total earned income.

Line 6. To find her credit, Kelly goes to the Earned Income Credit Table in the forms instruction booklet. She finds her earned income of $6,040 (from the EIC Worksheet, line 5) in the range of $6,000 to $6,050. Kelly follows this line across to the column "No children" and finds $306. She enters $306 on line 6.

Line 7. She enters $6,060 ($6,040 plus $20) from Form 1040EZ, line 4.

Line 8. Kelly checks the box for Yes and follows the instruction because her modified AGI of $6,060 is more than $5,600. Kelly again goes to the Earned Income Credit Table to find the amount of the credit based on her modified AGI. She finds $6,060 in the range of $6,050 to $6,100. Kelly follows this line across to the column "No children" and finds $303. Kelly enters $303 on line 8.

Line 9. Because Kelly checked the Yes box on line 8, she enters the smaller of $306 (line 6) or $303 (line 8). She enters $303 here and on Form 1040EZ, line 8a. The $303 is Kelly's earned income credit.

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