The earned income credit, or EIC, is a special credit for workers who meet certain requirements and file a tax return. Persons with or without qualifying children may claim the EIC. For the year 2000, the maximum credit is $2,353 for persons with one qualifying child, and $3,888 for persons with two or more qualifying children. The maximum credit is $353 for persons without qualifying children. The following requirements apply to all taxpayers who may be eligible for the EIC.

Do you have earned income?

To claim the earned income credit, you must have earned income. Earned income includes all income from working even if it is not taxable. Examples of earned income are wages, salaries, tips, and net earnings from self-employment. Earned income also includes certain nontaxable amounts such as contributions to a 401(k) plan, basic housing and subsistence allowances for military personnel, mandating contributions to a state or local retirement plan, excludable employee-provided benefits, and salary reductions such as under a cafeteria plan. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.

Do you have investment income?

If you have investment income of more than $2,400, you may not claim the EIC. Investment income includes taxable interest, tax exempt interest, dividend income, capital gain net income, certain income from rents or royalties, and certain income from passive activities. It does not include gains from selling business assets. For more information, refer to Publication 596, Earned Income Credit.

What is your filing status?

To claim the EIC, your filing status must be single, head of household, qualifying widow or widower, or married filing jointly. You cannot claim the EIC if your filing status is married filing separately.

Do you (and your spouse, if filing jointly) have a social security number?

You (and your spouse, if filing jointly) must each have a valid social security number issued by the Social Security Administration. Generally, you cannot claim the EIC if you (or your spouse, if filing jointly) have a social security card that says "not valid for employment." If you fail to provide a social security number for yourself (and your spouse, if filing jointly), the EIC will not be allowed.

Are you a qualifying child of another person?

If you (or your spouse, if filing jointly) are a qualifying child of another person, you cannot claim the EIC.

Do you have foreign earned income?

If you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, you cannot claim the EIC.

Are you a nonresident alien?

If you are a nonresident alien, you can claim the EIC only if you are married to a United States citizen or resident, and you file a joint return and are taxed as a resident for all of 2000.

If you do not have a child,

There are three more requirements: age, dependency, and residence. To claim the EIC you (or your spouse, if filing jointly) must be at least age 25 but under age 65 at the end of 2000. If someone else can claim you (or your spouse, if filing jointly) as a dependent on their return, you cannot claim the EIC. If someone else can claim you as a dependent, but does not, you still cannot claim the EIC. To claim the EIC, you (and your spouse, if filing jointly) must live in the United States for more than half the year. Military personnel stationed outside the United States on extended active duty are considered to live in the United States during that period for EIC purposes.

If you have a child, is your child a qualifying child?

A qualifying child is a child who meets certain relationship, residency, and age requirements. The child must be your

son, daughter, adopted child, grandchild, stepchild, or eligible foster child. An eligible foster child is one who lived with you for the entire year and whom you cared for as you would your own child. In addition, starting in 2000, to be an eligible foster child, the child must be your brother, sister, stepbrother, or stepsister (or a descendant of your brother, sister, stepbrother, or stepsister) or have been placed with you by an authorized placement agency. Your child must have lived with you in the United States for more than half the year, or for the entire year if an eligible foster child. Military personnel stationed outside the United States on extended active duty are considered to live in the United States during that period for EIC purposes. Your child must be under age 19 at the end of 2000 (or under age 24 at the end of 2000 and a full-time student during 2000), or any age if permanently and totally disabled. Refer to Publication 596 for exceptions to the time your child must have lived with you.

Does your child have a social security number?

Your qualifying child must have a valid social security number issued by the Social Security Administration. If your qualifying child does not have a social security number or if your child's social security card reads "not valid for employment," you cannot claim the EIC on the basis of that qualifying child. More information on social security numbers for purposes of the EIC can be found in Publication 596.

Is your child the qualifying child of another taxpayer?

You cannot claim the EIC on the basis of a qualifying child if you and someone else have the same qualifying child and the other person has a higher modified adjusted gross income than you have. This is true even if the other person does not meet all the rules to claim the EIC or chooses not to claim the EIC.

Do you meet the Earned Income and Modified Adjusted Gross Income (AGI) Limit?

To claim the EIC, your earned income and modified AGI must each be less than $10,380 if you have no qualifying children, $27,413 if you have one qualifying child, or $31,152 if you have two or more qualifying children. Modified AGI for most people is the same as AGI. AGI is the amount on line 33 (Form 1040), line 18 (Form 1040A), or line 4 (Form 1040EZ). You must add certain amounts to your AGI if you:

• Claim a loss on Schedule C, C-EZ, D, E, or F,
• Claim a loss from the rental of personal property not used in a trade or business,
• Received any tax-exempt interest, or
• Received any pension, annuity, or individual retirement arrangement (IRA) distribution that was partly nontaxable.

For more information, refer to Publication 596, Earned Income Credit.

How do you figure the EIC?

Most people can use a worksheet in the instructions for Form 1040, 1040A, or 1040-EZ to figure this credit. People with more complicated returns need to figure their credit using a worksheet in Publication 596, or the IRS can figure the credit for you. If you want the IRS to figure the credit, carefully follow the steps in the instructions for your form or refer to Publication 596. If you think you meet the requirements for the EIC, either with or without a qualifying child, refer to the instructions for your tax forms, or Publication 596 to help you determine if you are eligible for the EIC. Certain taxpayers must use Publication 596, Earned Income Credit, to determine if they are eligible and to figure the amount of their credit. You may want to order the publication even if you do not have to. To order forms and publications call 1-800-829-3676, or visit the Forms and Publications section of this web site.

What is advance EIC?

If you expect to qualify for the EIC in 2001, you may be able to receive part of the EIC in advance during the year. To see if you qualify to receive advance EIC, select Topic 604.

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