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Publication 17
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37. Earned Income CreditImportant Changes for 2002New definition of earned income. Earned income no longer includes nontaxable employee compensation. See Rule 6 and Rule 14. Elimination of modified adjusted gross income (AGI). You no longer need to figure modified AGI. Your EIC is figured using your AGI, not modified AGI. See Rule 15. New rules for persons with same qualifying child. New rules determine which person can claim the EIC on the basis of a qualifying child when two or more persons have the same qualifying child and both claim the credit using that child. See Rule 8. New definition of eligible foster child. There is a new definition of an eligible foster child in Rule 7. The child has to live with you only for more than half of the year, instead of the whole year. Reduction of EIC by alternative minimum tax eliminated. Your EIC is no longer reduced by the amount of alternative minimum tax shown on your return. Earned income amount is more. The amount you can earn and still get the credit has increased for 2002. The amount you earn must be less than:
Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased for 2002. You can have investment income up to $2,550. For most people, investment income is taxable interest and dividends, tax-exempt interest, and capital gain net income. To get more detailed information, see Rule 5. Important RemindersCertain people must use Publication 596. Certain people must use Publication 596 to see if they meet the rules to take the EIC. You must use Publication 596 if any of the following situations applies to you.
For information on how you can get Publication 596, Earned Income Credit, or other free IRS publications, see How To Get Tax Help in the back of this publication. Advance payment of the earned income credit in your paycheck. If you qualify for the earned income credit in 2003, you can receive part of it in each paycheck throughout the year. See Advance Earned Income Credit, later, for more information. Earned income credit has no effect on certain welfare benefits. Any refund you receive because of the EIC and any advance EIC payments you receive generally will not be used to determine whether you are eligible for the following benefit programs, or how much you can receive from these programs.
Temporary assistance for needy families (TANF) benefits may be affected. Please check with your state. Social security numbers. To claim the EIC, you must have a valid social security number (SSN) for you and your spouse (if filing a joint return) and any qualifying children. If an SSN is missing or incorrect, you may not get the credit. See Rule 1, later. Form 8862 to claim EIC after disallowance. If your EIC for any year after 1996 was denied or reduced for any reason other than a mathematical or clerical error, you must attach a completed Form 8862, Information To Claim Earned Income Credit After Disallowance, to your next return if you wish to claim the EIC. The date on which your EIC was denied and the date on which you file your 2002 return affect whether you need to attach Form 8862 to your 2002 return or to a later return. See chapter 5 in Publication 596 for more information. IntroductionThe earned income credit (EIC) is a tax credit for certain people who work and have earned income under $34,178. 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. How do you get the earned income credit? To claim the EIC, you must:
When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Or, if you prefer, you can let the IRS figure the credit for you. How will this chapter help you? This chapter will explain the following:
To learn about the rules you must meet, first read Do You Qualify for the Credit, later. Useful ItemsYou may want to see: Publication
Form (and Instructions)
Do You Qualify for the Credit?To see if you can claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone. Then you must meet the rules in Part B, Rules If you Have a Qualifying Child, or Part C, Rules If You Do Not Have a Qualifying Child. There are two final rules you must meet in Part D, Figuring and Claiming the EIC. You qualify for the credit if you meet all the rules in each part that applies to you. For example:
Table 37-1, Earned Income Credit in a Nutshell. Use Table 37-1 as a guide to Parts A, B, C, and D. The table is a summary list of all the rules in each part. Each rule listed has a rule number. Use the rule number to find a discussion of that rule in this chapter. Earned Income Credit in a Nutshell Table 37-1. Earned Income Credit in a Nutshell
Do you have a qualifying child? Basically, a qualifying child is a child who meets all of the following qualifications.
See Rule 7 for more detailed information. If Improper Claim
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| Part A Rules for Everyone | Part B Rules If You Have a Qualifying Child | Part C Rules If You Do Not Have a Qualifying Child | ||
| Rule 1. You must have a valid social security number. | Rule 7. Your child must meet the relationship, age, and residency tests. | Rule 10. You must be at least age 25 but under age 65. | ||
| Rule 2. Your filing status cannot be Married filing separately. | Rule 8. Your qualifying child cannot be used by more than one person to claim the EIC. | Rule 11. You cannot be the dependent of another person. | ||
| Rule 3. You must be a U.S. citizen or resident alien all year. | Rule 9. You cannot be a qualifying child of another person. | Rule 12. You cannot be a qualifying child of another person. | ||
| Rule 4. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). | Rule 13. You must have lived in the United States more than half the year. | |||
| Rule 5. Your investment income must be $2,550 or less. | ||||
| Rule 6. You must have earned income. | ||||
| Part D Figuring and Claiming the EIC | ||||
Rule 14. Your earned income must
be less than:
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Rule 15. Your AGI must be less
than:
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Form 4029. Even if you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. However, amounts you received as a self-employed individual do not count as earned income. Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040.
If you retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age.
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b).
Disability insurance payments. Payments you received from a disability insurance policy that you paid the premiums for are not earned income. It does not matter whether you have reached minimum retirement age. If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code J.
Examples of items that are NOT earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Do NOT include any of these items in your earned income.
Earnings while an inmate. Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. This includes amounts received through a work release program or while in a halfway house.
Nonqualified deferred compensation plan or a section 457 plan pension or annuity. Amounts you received as a pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan and that were included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ) are not earned income. (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 of the pension or annuity.)
Workfare payments. Nontaxable workfare payments are not earned income for the EIC. These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities.
Community property. If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 2), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws.
Use Part B if you:
This part of the chapter discusses Rules 7 through 9. You must meet all three of these rules, in addition to the rules in Parts A and D, to qualify for the earned income credit with a qualifying child.
Qualifying child
You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. (You cannot file Form 1040EZ). You must also complete Schedule EIC and attach it to your return. If you meet all the rules in Part A and this part, read Part D to find out what to do next.
If you do not
meet Rule 7, you do not have a qualifying child. Read Part C to find out if you can get
the earned income credit without a qualifying child.
Your child is a qualifying child if your child meets three tests. The three tests are:
The three tests are illustrated in Figure 37-1. The paragraphs that follow contain more information about each test.
Your child must be either your son, daughter, adopted child, stepchild, grandchild, or eligible foster child. Your brother, sister, stepbrother, or stepsister (or the child or grandchild of your brother, sister, stepbrother, or stepsister) may also be a qualifying child if you care for this individual as you would your own child. The following definitions clarify the relationship test.
Adopted child. Your adopted child includes a child placed with you for adoption by an authorized placement agency, even if the adoption is not final.
An authorized placement agency includes any person or court authorized by state law to place children for legal adoption.
Grandchild. For the EIC, this means any descendant of a son,
daughter, stepchild, or adopted child. For example, a grandchild includes your
great-grandchild, great-
great-grandchild, etc.
Child not a dependent. Your child does not have to be your dependent to be a qualifying child, unless he or she is married.
Married child. If your child was married at the end of the year, he or she does not meet the relationship test unless either of these two situations applies to you:
Eligible foster child. For the EIC, a person is your eligible foster child if both of the following are true.
Example. Debbie, who is 12 years old, was placed in your care two years ago by an authorized agency responsible for placing children in foster homes. You care for her as you would your own child. Debbie is your eligible foster child.
Your child must be:
The following example and definitions clarify the age test.
Example. Your son turned 19 on December 10. Unless he was disabled or a full-time student, he is not a qualifying child because, at the end of the year, he was not under age 19.
Full-time student. A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance.
Student defined. To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year:
The 5 calendar months need not be consecutive.
School defined. A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. However, on-the-job training courses, correspondence schools, and night schools do not count as schools for the EIC. (But see Night school, later.)
Vocational high school students. Students who work on co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students.
Night school. Your child is not a full-time student if he or she attends school only at night. However, full-time attendance at a school may include some attendance at night as part of a full-time course of study.
Permanently and totally disabled. Your child is permanently and totally disabled if both of the following apply.
Your child must have lived with you in the United States for more than half of 2002. The following definitions clarify the residency test.
United States. This means the 50 states and the District of Columbia. It does not include U.S. possessions, such as Guam and Puerto Rico.
Homeless shelter. Your home can be any location where you regularly live. You do not need a traditional home. For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test.
Military personnel stationed outside the United States. U.S. military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC.
Extended active duty. Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days.
Birth or death of a child. A child who was born or died in 2002 is treated as having lived with you for all of 2002 if your home was the child's home the entire time he or she was alive in 2002.
Temporary absences. Count time that you or your child is away from home on a temporary absence due to a special circumstance as time lived at home. Examples of a special circumstance include:
Kidnapped child. A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. This treatment applies for all years until the child is returned. However, the last year this treatment can apply is the earlier of:
If your qualifying child has been kidnapped and meets these requirements, enter KC, instead of a number, on line 6 of Schedule EIC.
Social security number. Your qualifying child must have a valid social security number (SSN) unless the child was born and died in 2002. You cannot claim the EIC on the basis of a qualifying child if:
If you have two qualifying children and only one has a valid SSN, you can claim the EIC only on the basis of that child. For more information about SSNs, see Rule 1.
Sometimes a child meets the rules to be a qualifying child of more than one person. However, only one person can treat that child as a qualifying child and claim the EIC using that child. The paragraphs that follow will help you decide who can claim the EIC when more than one person has the same qualifying child.
You can choose which person will claim the EIC. If you and someone else have the same qualifying child, you and the other person(s) can decide who will claim the credit using that qualifying child. But if you and the other person(s) cannot agree and more than one person claims the credit using the same child, the tie-breaker rule (explained in the next paragraph) applies. If the other person is your spouse and you file a joint return, this rule does not apply.
Under the tie-breaker rule, the child can be treated as a qualifying child only by:
If another person claims the EIC using this child. If your qualifying child is treated under this rule as the qualifying child of another person for 2002, you cannot take the EIC using this qualifying child. You may be able to take the EIC using a different qualifying child, but you cannot take the EIC for people who do not have a qualifying child. If you do not have another qualifying child, STOP; you cannot take the EIC. Put No beside line 64 (Form 1040) or line 41 (Form 1040A).
Example 1. You and your 2-year-old son lived with your mother all year. You are 25 years old. Your only income was $9,000 from a part-time job. Your mother's only income was $20,000 from her job. Your son is a qualifying child of both you and your mother because he meets the relationship, age, and residency tests for both you and your mother. However, only one of you can use him to claim the EIC. You and your mother may choose which of you will treat the child as a qualifying child to claim the EIC. However, if you and she disagree and both use him to claim the EIC, you as the child's parent will be the only one allowed to claim the credit using this child.
Example 2. The facts are the same as in Example 1, except that you also have two other young children who lived with you and your mother and are qualifying children of both you and your mother. Only one of you can use each child to claim the EIC. However, you and your mother can split the three qualifying children between you. For example, you can use one child to claim the EIC and your mother can use the other two.
Example 3. The facts are the same as in Example 1, except that you are only 18 years old. This means you are a qualifying child of your mother. Because of Rule 9, you cannot claim the EIC. Only your mother may be able to treat your son as a qualifying child to claim the EIC.
Example 4. You, your husband, and your 10-year-old son lived together until July 1, 2002, when your husband moved out of the household. In July and August, your son lived with your husband. In September and October, the boy lived with you. On November 1, 2002, you and your husband were divorced. For the rest of the year, your son lived with your ex-husband, who was given custody. Your son is a qualifying child of both you and your ex-husband because your son lived with each of you for more than half the year and because he met the relationship and age tests for both of you. You earned $11,000 during the year and your ex-husband earned $25,000. Neither of you had any other income.
You and your ex-husband may choose which of you will treat the child as a qualifying child to claim the EIC. However, if you and he are unable to agree and both use the child to claim the EIC, only your ex-husband will be allowed to claim the credit using this child. This is because, during 2002, the child lived with him longer than with you. You cannot claim the EIC for persons either with or without a qualifying child.
Example 5. You, your 5-year-old son, and your son's father lived together all year. You and your son's father are not married. Your son is a qualifying child of both you and his father because he meets the relationship, age, and residency tests for both you and his father. You earned $8,000 and your son's father earned $18,000. Neither of you had any other income. You and your son's father may choose which of you will treat the child as a qualifying child to claim the EIC. However, if you and he are unable to agree and both use the child to claim the EIC, only the father will be allowed to claim the credit using this child. This is because his AGI ($18,000) was more than your AGI ($8,000). You cannot claim the EIC for persons either with or without a qualifying child.
Example 6. You and your 7-year-old niece lived with your mother all year. You care for your niece as you would your own child. You are 25 years old, and your only income was $9,300 from a part-time job. Your mother's only income was $15,000 from her job. Your niece is a qualifying child of both you and your mother because she meets the relationship, age, and residency tests for both you and your mother. However, only one of you can treat her as a qualifying child to claim the EIC. You and your mother may choose which of you will use the child to claim the EIC. However, if you and she are unable to agree and both use the child to claim the EIC, only your mother will be allowed to claim the credit using this child. This is because her AGI ($15,000) is higher than your AGI ($9,300).
You are a qualifying child of another person (your parent, guardian, foster parent, etc.) if all of the following statements are true.
For more details about the tests to be a qualifying child, see Rule 7.
If you (or your spouse if filing a joint return) are a qualifying child of another person, you cannot claim the EIC. This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Put No beside line 64 (Form 1040) or line 41 (Form 1040A).
Example. You and your daughter lived with your mother all year. You are 22 years old and attended a trade school full time. You had a part-time job and earned $5,700. You had no other income. Because you meet the relationship, age, and residency tests, you are a qualifying child of your mother. She can claim the EIC if she meets all the other requirements. Because you are your mother's qualifying child, you cannot claim the EIC. This is so even if your mother cannot or does not claim the EIC.
Use Part C if you:
This part of the chapter discusses Rules 10 through 13. You must meet all four of these rules, in addition to the rules in Parts A and D, to qualify for the earned income credit without a qualifying child.
If you have a
qualifying child, the rules in this part do not apply to you. You can claim the credit
only if you meet all the rules in Parts A, B, and D. See Rule 7 to find out if you have a
qualifying child.
You must be at least age 25 but under age 65 at the end of 2002. If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2002. It does not matter which spouse meets the age test, as long as one of the spouses does.
If neither you nor your spouse meets the age test, you cannot claim the EIC. Put No directly to the right of line 64 (Form 1040), line 41 (Form 1040A), or on line 8 (Form 1040EZ).
Example 1. You are age 28 and unmarried. You meet the age test.
Example 2. You are married and filing a joint return. You are age 23 and your spouse is age 27. You meet the age test because your spouse is at least age 25 but under age 65.
If you are not filing a joint return, you meet this rule if:
If you are filing a joint return, you meet this rule if:
If you are not sure whether someone else can claim you (or your spouse if filing a joint return) as a dependent, read the rules for claiming a dependent in chapter 3.
If someone else can claim you (or your spouse if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the credit.
Example 1. In 2002, you were age 25, single, and living at home with your parents. You worked and were not a student. You earned $7,500. Your parents cannot claim you as a dependent. When you file your return, you claim an exemption for yourself by checking the No box on line 5 of your Form 1040EZ. You meet this rule.
Example 2. The facts are the same as in Example 1, except that you earned $2,000. Your parents can claim you as a dependent but decide not to. You do not meet this rule. You cannot claim the credit because your parents could have claimed you as a dependent.
You are a qualifying child of another person (your parent, guardian, foster parent, etc.) if all of the following statements are true.
If you (or your spouse if filing a joint return) are a qualifying child of another person, you cannot claim the EIC. This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Put No directly to the right of line 64 (Form 1040), line 41 (Form 1040A), or on line 8 (Form 1040EZ).
Example. You lived with your mother all year. You are age 26 and permanently and totally disabled. Your only income was from a community center where you went twice a week to answer telephones. You earned $1,500 for the year. Because you meet the relationship, age, and residency tests, you are a qualifying child of your mother. She can claim the EIC if she meets all the other requirements. Because you are a qualifying child of your mother, you cannot claim the EIC. This is so even if your mother cannot or does not claim the EIC.
Your home (and your spouse's if filing a joint return) must have been in the United States for more than half the year.
If not, put No directly to the right of line 64 (Form 1040), line 41 (Form 1040A), or on line 8 (Form 1040EZ).
United States. This means the 50 states and the District of Columbia. It does not include U.S. possessions, such as Guam and Puerto Rico.
Homeless shelter. Your home can be any location where you regularly live. You do not need a traditional home. If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule.
Military personnel stationed outside the United States. U.S. military personnel stationed outside the United States on extended active duty (defined in Rule 7) are considered to live in the United States during that duty period for the EIC.
Use this part if you have met all the rules in Parts A and B, or all the rules in Parts A and C.
This part of the chapter discusses Rules 14 and 15. You must meet both rules, in addition to the rules in Parts A and B, or Parts A and C, to qualify for the earned income credit.
This part of the chapter also explains how to figure the amount of your credit. You have two choices.
Earned income generally means wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. Earned income is explained in detail in Rule 6.
Self-employed persons and statutory employees. If you are self-employed, a statutory employee, or a member of the clergy or church employee who files Schedule SE (Form 1040), you must use the Form 1040 instructions or Publication 596 to see if you qualify to get the EIC and to figure the amount of your total earned income and the amount of EIC.
Church employee. In this chapter, this term means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.
Taxable earned income. If you are an employee, you figure your taxable earned income by starting with the amount on the Wages line on your tax return (line 7, Forms 1040 and 1040A, or line 1, Form 1040EZ). You then subtract the following amounts from the amount on the Wages line on your tax return.
Adjusted gross income (AGI). AGI is the amount on line 35 (Form 1040), line 21 (Form 1040A), or line 4 (Form 1040EZ). If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC.
Example. Your AGI is $29,500, you are single, and you have one qualifying child. You cannot claim the EIC because your AGI is not less than $29,201. However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $30,201.
Community property. If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 2), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. This is different from the community property rules that apply under Rule 6.
The IRS will figure the amount of your EIC for you if you follow the steps explained in this section. If you have a qualifying child, complete and attach Schedule EIC.
Please do not
ask the IRS to figure your EIC unless you are eligible for it. Read the rules in Parts A,
B, C, and D to see if you qualify.
If you want the
IRS to also figure the amount of your income tax, see chapter 31.
If you file Form 1040 and want the IRS to figure your credit for you, follow these steps.
If you file Form 1040A and want the IRS to figure your credit for you, follow these steps.
If you file Form 1040EZ and want the IRS to figure your credit for you, follow these steps.
Use the following special instructions, if the situation applies to you.
Qualifying child information (Schedule EIC). Whether the IRS figures your credit or you figure it yourself, you must give the IRS information about your qualifying child. To do this, complete Schedule EIC and attach it to your Form 1040 or Form 1040A.
The information you enter on Schedule EIC must show that the child meets all the tests for a qualifying child. (See Rule 7.) The schedule has space for information about only two qualifying children because the amount of your credit is the same whether you have two, three, or more qualifying children.
Do not file
Form 1040EZ if you have a qualifying child and qualify for the credit. You must file Form
1040 or Form 1040A.
Minister or member of a religious order. If you are filing Schedule SE and line 2 of the schedule includes an amount that is also included on Form 1040, line 7, print Clergy directly to the right of line 64 (Form 1040). Also show the amount included on both lines (for example, Clergy $800).
Inmates. If you were an inmate in a penal institution and the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ) includes an amount paid to you for work performed while an inmate, print PRI and the amount paid on the dotted line next to line 7 (Form 1040), in the space to the left of line 7 (Form 1040A), or in the space to the right of the words W-2 form(s) on line 1 (Form 1040EZ).
Deferred compensation plans. If the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ) includes a pension or annuity you received from a nonqualified deferred compensation plan or a nongovernmental section 457 plan, put DFC and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of line 7 (Form 1040A), or to the right of the words W-2 Forms on 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 of the pension or annuity.
This part of this chapter explains how to use the EIC Worksheet and how to report the credit on your return. To figure the amount of your earned income credit, you can use the Earned Income Credit Worksheet (EIC Worksheet) in the instruction booklet for Form 1040, Form 1040A, or Form 1040EZ, and the Earned Income Credit (EIC) Table in the tax form instruction booklet. However, certain people must use Publication 596 to see if they meet the rules to take the EIC. You must use Publication 596 if any of the following situations applies to you.
The amount of your earned income credit depends on:
Form 1040 and EIC Worksheet. If you file Form 1040 and want to figure the credit yourself, follow these steps.
Form 1040A and EIC Worksheet. If you file Form 1040A and want to figure the credit yourself, follow these steps.
Form 1040EZ and EIC Worksheet. If you file Form 1040EZ and want to figure the credit yourself, follow these steps.
The following two comprehensive examples (complete with filled-in forms) may be helpful when figuring the earned income credit. The two examples are:
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 2002. John worked and earned $9,500. Janet worked part of the year and earned $1,500. Their total earned income and 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.
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 Smiths fill out Qualifying Child Information (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 Amy's SSN. (See Rule 7, earlier.)
Line 3. They enter the year of birth for Amy (1999).
Lines 4a and 4b. The Smiths skip these lines because Amy was born after January 1, 1984.
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 2002.
Next, the Smiths will complete the EIC Worksheet to figure their earned income credit amount.
Line 1. The Smiths enter $11,000 (their total earned income).
Line 2. The Smiths go to the Earned Income Credit Table in the Form 1040A instructions. The Smiths find their income of $11,000 within the range of $11,000 to $11,050. They follow this line across to the column that describes their filing status and number of children, and find $2,506 and enter it on this line 2.
Line 3. The Smiths enter their AGI of $11,000.
Line 4. The Smiths check the Yes box because lines 1 and 3 are the same ($11,000). They skip line 5 and enter the amount from line 2 ($2,506) on line 6.
Line 6. The Smiths' EIC is $2,506.
Kelly Green is age 30 and a full-time student. She lived with her parents in the United States for all of 2002. She had a part-time job and earned $6,240. 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.
Kelly figures the amount of her earned income credit on the EIC Worksheet as follows.
Line 1. She enters $6,240 (her total earned income).
Line 2. Kelly goes to the Earned Income Credit Table in the forms instruction booklet. She finds her earned income of $6,240 in the range of $6,200 to $6,250. Kelly follows this line across to the column that describes her filing status and number of children and finds $370. She enters $370 on this line 2.
Line 3. Kelly enters $6,260 (her AGI).
Line 4. Kelly checks the No box because lines 1 and 3 are not the same ($6,240 and $6,260).
Line 5. Kelly checks the No box because the amount on line 3 ($6,260) is not less than $6,150. She goes to the Earned Income Credit Table in the forms instruction booklet. She finds her adjusted gross income of $6,260 in the range of $6,250 to $6,300. Kelly follows this line across to the column that describes her filing status and number of children and finds $366. She enters $366 on line 5. She looks at the amounts on lines 5 and 2. $366 is the smaller amount.
Line 6. She enters $366 here and on Form 1040EZ, line 8. The $366 is Kelly's earned income credit.
Would you like to get part of your earned income credit now instead of waiting until after the end of the year? If you work for someone and expect to qualify for the earned income credit in 2003, you can choose to get part of the credit in advance. Give your employer a 2003 Form W-5, Earned Income Credit Advance Payment Certificate, and your employer will include part of the credit regularly in your pay. The advance payment is only available if you have at least one qualifying child.
Who can get the advance payment of the earned income credit? To get part of the earned income credit paid to you throughout the year in your paycheck, you must meet all the following rules.
Persons who are not entitled to receive advance payments. Under certain circumstances, even if you meet these rules, you may not be entitled to get EIC. If your wages are not subject to federal income tax, social security tax, or Medicare tax withholding, you cannot get the advance payment of the earned income credit. If you are a farm worker and are paid on a daily basis, your employer is not required to pay you the advance amount of the credit.
To get part of the credit in advance, you must fill out a 2003 Form W-5. After you have read the instructions and answered the questions on Form W-5, give the lower part of the form to your employer. Keep the top part for your records.
More than one employer. If you have more than one employer, give a certificate to only one of them. If you are married and both you and your spouse are employed and expect to qualify for the credit, you may give a Form W-5 to your employer and your spouse may give one to his or her employer.
If you receive
advance earned income credit payments in 2003, you must file Form 1040 or Form 1040A for
tax year 2003. You must file a return to report what you already received and to take
advantage of any additional earned income credit that you may qualify for.
Receipt of advance payments you do not qualify for. If you receive advance payments and later find out that you do not qualify for the EIC, you will have to pay back any advance payment you are not entitled to when you file your Form 1040 or Form 1040A.
When to give your employer a new Form W-5. The 2003 Form W-5 you give to your employer is valid until December 31, 2003. If you expect to qualify for the earned income credit in 2004 and you want to receive advance payments, you must give your employer a new Form W-5 in 2004. Do this each year you think you are eligible for the credit.
If you no longer want to get advance payments or if your situation changes and you no longer qualify for the earned income credit, you must give your employer a new Form W-5. Check the No box on line 1 of the new form.
If your spouse files a Form W-5 with his or her employer, you must file a new Form W-5 with your employer. Check the Yes box on line 3.
If you received advance payments of the earned income credit in 2002, you must file a tax return to report the payments. Report the amount on line 59 (Form 1040), or line 37 (Form 1040A). Your Form W-2, box 9, will show the amount you received.
You cannot use
Form 1040EZ to report your advance payments.
Smith's Schedule EIC
Smith's EIC Worksheet
EIC worksheet-Kelly
| You may claim the EIC if you answer YES to all the following questions.* | ||||
| YES | NO | |||
| 1. | Do you, your spouse, and your qualifying child each have a valid SSN? (See Rule 1.) | ![[ ]](../pixs/squ.gif){kind=small} |
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| 2. | Is your filing status married filing jointly, head of household, qualifying widow(er), or single? (See Rule 2.) Caution: If you are a nonresident alien, answer YES only if your filing status is married filing jointly and you are married to a U.S. citizen or resident alien. (See Rule 3.) | |
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| 3. | Answer YES if you are not filing Form 2555 or Form 2555-EZ. Otherwise, answer NO. (See Rule 4.) | |
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| 4. | Is your investment income $2,550 or less? (See Rule 5.) | |
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| 5. | Is your AGI less than:
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| 6. | Is your total earned income at least $1 but less than:
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| 7. | Answer YES if you (and your spouse if filing a joint return) are not a qualifying child of another person. Otherwise, answer NO. (See Rules 9 and 12.) | |
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| STOP | If you have a qualifying child, answer questions 8 and 9 and skip 10-12. If you do not have a qualifying child, skip answers 8 and 9 and answer 10-12.* | |||
| 8. | Does your child meet the age, residency, and relationship tests for a qualifying child? (See Rule 7.) | |
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| 9. | Is your child a qualifying child only for you? Answer YES if your qualifying child also meets the tests to be a qualifying child of another person, but either (a) the other person is not claiming the EIC using that child, or (b) if the other person is claiming the EIC using that child, Rule 8 allows you and not the other person to treat the child as a qualifying child. (See Rule 8.) | |
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| 10. | Was your main home (and your spouse's if filing a joint return) in the United States for more than half the year? (See Rule 13.) | |
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| 11. | Were you (or your spouse if filing a joint return) at least age 25 but under 65 at the end of 2002? (See Rule 10.) | |
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| 12. | Answer YES if you (and your spouse if filing a joint return) cannot be claimed as a dependent on anyone else's return. Answer NO if you (and your spouse if filing a joint return) can be claimed as a dependent on someone else's return. (See Rule 11.) | |
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| * | PERSONS WITH A QUALIFYING CHILD: If you answered YES to questions 1 through 9, you can claim the EIC. Remember to fill out Schedule EIC and attach it to your Form 1040 or Form 1040A. You cannot use Form 1040EZ. | |||
| PERSONS WITHOUT A QUALIFYING CHILD: If you answered YES to questions 1 through 7, and 10 through 12, you can claim the EIC. | ||||
| If you answered NO to any question that applies to you: You cannot claim the EIC. | ||||
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