Earned Income Credit


The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $51,567. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.

To claim the EIC, you must meet certain rules.

  • Rules for the Earned Income Credit

  • Valid Social Security Number

  • Your Filing Status Cannot Be “Married Filing Separately”

  • You Must Be a U.S. Citizen or Resident Alien All Year

  • You Cannot File Form 2555 or Form 2555­EZ

  • Your Investment Income Must Be $3,300 or Less

  • You Must Have Earned Income

RULES FOR THE EARNED INCOME CREDIT

To qualify for the EIC, you must meet the following requirements:

  • You must have earned income. If you are married and file a joint return, you meet this rule if at least one spouse has earned income.

  • For 2013, your earned income and adjusted gross income must both be less than:

  • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,

  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,

  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or

  • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child.

  • You (and your spouse if Married Filing Jointly) must have aIf your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. Social Security number (SSN) that allows you to work. Your Social Security card cannot say "not valid for employment."

  • Your return must include a valid SSN for each person you claim as a qualifying child on Schedule EIC, Earned Income Credit.

  • Your filing status cannot be Married Filing Separately.

  • You must be a U.S. citizen or resident alien all year.

  • You must not have filed Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.

  • Generally, you must not have more than $3,400 of investment income (i.e., interest, dividends, net income from rent, net capital gain, and net passive income that is not self-employment income). If qualifying children are used for the credit, they must meet the Relationship, Age, and Residency Tests. A qualifying child cannot be used by more than one person to claim the EIC.

  • If no qualifying children are used for the credit, you must be at least age 25 but under age 65.

  • You cannot be the qualifying child of another person or be claimed as a dependent on another return.

  • You must have lived in the United States for more than half of the year. Members of the military on extended active duty outside the United States are considered to be in the United States during the duty period.

Valid Social Security Number

To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Any qualifying child listed on Schedule EIC also must have a valid SSN. (See Rule 8 if you have a qualifying child.) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. An example of a federally funded benefit is Medicaid. If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U.S. citizen or permanent resident, ask the SSA for a new social security card without the legend. If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return, to claim the EIC.

Your Filing Status Cannot Be “Married Filing Separately”

If you are married, you usually must file a joint return to claim the EIC. Your filing status cannot be “Married filing separately.” Spouse did not live with you. If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. In that case, you may be able to claim the EIC. For detailed information about filing as head of household.

You Must Be a U.S. Citizen or Resident Alien All Year

If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. You can use that filing status only if one spouse is a U.S. citizen or resident alien and you choose to treat the nonresident spouse as a U.S. resident. If you make this choice, you and your spouse are taxed on your worldwide income. If you need more information on making this choice, get Publication 519, U.S. Tax Guide for Aliens. If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A).

You Cannot File Form 2555 or Form 2555­EZ

You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. U.S. possessions are not foreign countries.

Your Investment Income Must Be $3,300 or Less

You cannot claim the earned income credit unless your investment income is $3,300 or less. If your investment income is more than $3,300, you cannot claim the credit

You Must Have Earned Income

This credit is called the “earned income” credit because, to qualify, you must work and have earned income. If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. If you are an employee, earned income includes all the taxable income you get from your employer.

Rule 15 has information that will help you figure the amount of your earned income. If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions.

Earned Income

Earned income includes all of the following types of income.

1. Wages, salaries, tips, and other taxable employee pay. 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, as explained later in this chapter.

2. Net earnings from self-employment.

3. Gross income received as a statutory employee.

Wages, salaries, and tips

Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040).

Nontaxable combat pay election

You can elect to include your nontaxable combat pay in earned income for the earned income credit. The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC.

Net earnings from self­employment

You may have net earnings from self-employment if:

  • You own your own business, or

  • You are a minister or member of a religious order.

Minister's housing. The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029, below).

Statutory employee.

You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040).

Strike benefits

Strike benefits paid by a union to its members are earned income.

Featured Posts
Recent Posts
Archive
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square

We are committed to protecting your privacy. The information you enter on our site is held in confidence between you and us.  We do not sell, trade, or rent your personal information to others. This privacy statement discloses how the information you provide is used and protected.
 

This Web Site (including all information, links and materials provided ) are made available only in accordance with certain terms and conditions.

By using this site you agree to these Terms and Conditions

 

​Copyright © 2020 Wells Income Tax. All Rights Reserved.