||2008 Tax Year
Figuring and Claiming the EIC
You must meet one more rule to be eligible to claim the EIC.
You need to know the amount of your earned income to see if you meet the rule in this chapter. You also
need to know that amount to figure your EIC.
Rule 15. Your Earned Income Must Be Less Than:
$37,783 ($39,783 for married filing jointly) if you have more than one qualifying child,
$33,241 ($35,241 for married filing jointly) if you have one qualifying child, or
$12,590 ($14,590 for married filing jointly) if you do not have a qualifying child.
Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Employee
pay is earned
income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not
earned income. But there
is an exception for nontaxable combat pay, which you can choose to include in earned income. Earned income is explained in
detail in Rule 7
in chapter 1.
Figuring earned income.
If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule
SE (Form 1040), you will figure
your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions.
Otherwise, figure your earned income by using the worksheet in Step 5
of the Form 1040 instructions for lines 66a and 66b or the Form
1040A instructions for lines 40a and 40b, or the worksheet in Step 2
of the Form 1040EZ instructions for lines 8a and 8b.
When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040
or Form 1040A) or line 1 (Form
1040EZ). You will then reduce that amount by any amount included on that line and described in the following list.
Scholarship or fellowship grants not reported on a Form W-2. A scholarship or fellowship grant that was not reported to you on a
Form W-2 is not considered earned income for the earned income credit.
Inmates. Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income
credit. This includes amounts received for work performed while in a work release program or while in a halfway house. If
you received any amount for
work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A)
or line 1 (Form 1040EZ),
put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form
in the space to the left of line 1 (Form 1040EZ).
Deferred compensation plans. A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457
plan is not considered earned income for the earned income credit. If you received such an amount and it was included in the
total on line 7 (Form
1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of
the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). This amount may be reported
in box 11 of your Form W-2.
If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity.
If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount
that was also reported on line
7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet
of the Form 1040 instructions for lines 66a and 66b. Put “Clergy
” on the dotted line next to line 66a (Form 1040).
A church employee means an employee (other than a minister or member of a religious order) of a church or qualified
that is exempt from employer social security and Medicare taxes. If you received wages as a church employee and included any
amount on both line 5a of
Schedule SE and line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the
first space of the
worksheet in Step 5
of the Form 1040 instructions for lines 66a and 66b.
Nontaxable combat pay.
You can elect to include your nontaxable combat pay in earned income for the earned income credit. If you make the
election, you must include in
earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received
nontaxable combat pay,
you can each make your own election. The amount of your nontaxable combat pay should be shown on your Form W-2 in box 12 with
Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Figure the credit with
and without your nontaxable
combat pay before making the election. Whether the election increases or decreases your EIC depends on your total earned income,
filing status, and
number of qualifying children. If your earned income without your combat pay is less than the amount shown below for your
number of children, you may
benefit from electing to include your nontaxable combat pay in earned income and you should figure the credit both ways. If
your earned income without
your combat pay is equal to or more than these amounts, you will not benefit from including your combat pay in your earned
$5,550 if you have no children.
$8,350 if you have one child.
$11,750 if you have two children.
The following examples illustrate the effect of including nontaxable combat pay in earned income for the EIC.
Example 1 - election increases the EIC.
George and Janice are married and will file a joint return. They have one qualifying child. George was in the military and
earned $15,000 ($5,000
taxable wages + $10,000 nontaxable combat pay). Janice worked part of the year and earned $2,000. Their taxable earned income
and AGI are $7,000.
George and Janice qualify for the earned income credit and fill out the EIC Worksheet and Schedule EIC.
When they complete the EIC worksheet without adding the nontaxable combat pay to their earned income, they find their credit
to be $2,389. When
they complete the EIC worksheet with the nontaxable combat pay added to their earned income, they find their credit to be
$2,853. Because making the
election will increase their EIC, they elect to add the nontaxable combat pay to their earned income for the EIC. They enter
$2,853 on line 40a of
their Form 1040A and enter the amount of their nontaxable combat pay on line 40b.
Example 2- election does not increase the EIC.
The facts are the same as Example 1 except George had nontaxable combat pay of $22,000. When George and Janice add their nontaxable
combat pay to their earned income, they find their credit to be $993. Because the credit they can get if they do not add the
nontaxable combat pay to
their earned income is $2,389, they decide not to make the election. They enter $2,389 on line 40a of their Form 1040A.
IRS Will Figure the EIC for You
The IRS will figure your EIC for you if you follow the instructions in Figure 3, below.
Please do not ask the IRS to figure your EIC unless you are eligible for it. To be eligible, you must meet Rule 15 in this
well as the rules in chapter 1 and either chapter 2 or chapter 3, whichever applies to you. If your credit was reduced or
disallowed for any year
after 1996, the rules in chapter 5 may apply as well.
Figure 3. Steps To Follow To Have the IRS Figure Your EIC
How To Figure the EIC Yourself
To figure the EIC yourself, use the EIC worksheet in the instructions for the form you are using (Form 1040, Form 1040A, or
Form 1040EZ). If you
have a qualifying child, complete Schedule EIC (discussed on page 25) and attach it to your tax return.
If you want the IRS to figure your EIC for you, see IRS Will Figure the EIC for You, earlier.
Special Instructions for Form 1040 Filers
If you file Form 1040, you will need to decide whether to use EIC Worksheet A or EIC Worksheet B to figure the amount of your
EIC. This section
explains how to use these worksheets and how to report the EIC on your return.
EIC Worksheet A.
Use EIC Worksheet A if you are not self-employed, a member of the clergy or a church employee who files Schedule
SE, or a statutory employee
filing Schedule C or C-EZ.
EIC Worksheet B.
Use EIC Worksheet B if you are self-employed, a member of the clergy or a church employee who files Schedule SE,
or a statutory employee filing
Schedule C or C-EZ. If any of the following situations apply to you, read the paragraph and then complete EIC Worksheet B.
Net earnings from self-employment $400 or more.
If your net earnings from self-employment are $400 or more, be sure to correctly fill out Schedule SE (Form
1040) and pay the proper amount of self-employment tax. If you do not, you may not get all the EIC you are entitled to.
When figuring your net earnings from self-employment, you must claim all your allowable business expenses.
When to use the optional methods of figuring net earnings.
Using the optional methods on Schedule SE to figure your net earnings from self-employment may qualify you for the EIC
or give you a larger credit. If your net earnings (without using the optional methods) are less than $1,600, see the instructions
for Schedule SE for
details about the optional methods.
When both spouses have self-employment income.
You must complete both Parts 1 and 2 of EIC Worksheet B if all of the following conditions apply to you.
You are married filing a joint return.
Both you and your spouse have income from self-employment.
You or your spouse files a Schedule SE and the other spouse does not file Schedule SE.
Statutory employees report wages and expenses on Schedule C or C-EZ. They do not file Schedule SE. If you are
a statutory employee, enter the amount from line 1 of Schedule C or C-EZ in Part 3 when you complete EIC Worksheet B.
You must complete Schedule EIC and attach it to your tax return if you have a qualifying child and are claiming the EIC. Schedule
EIC provides IRS
with information about your qualifying children, including their names, ages, SSNs, relationship to you, and the amount of
time they lived with you
during the year. An example of a filled-in Schedule EIC is shown on page 34.
If you are required to complete and attach Schedule EIC but do not, it will take longer to process your return and issue your
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