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Publication 596
Earned Income Credit (EIC)

For use in preparing 2002 Returns
Are You Eligible

Introduction- Begin Here

What is the EIC?

The 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.

Can I Claim the EIC?

To claim the EIC, you must meet certain rules. These rules are summarized in Table 1.

Table 1. Earned Income Credit in a Nutshell
First, you must meet all the rules in this column. Second, you must meet all the rules in one of these columns, whichever applies. Third, you must meet both the rules in this column.
Chapter 1. Rules for Everyone Chapter 2. Rules If You Have a Qualifying Child Chapter 3. Rules If You Do Not Have a Qualifying Child Chapter 4. Figuring and Claiming the EIC
1. You must have a valid social security number. (See page 5.)  2. Your filing status cannot be Married filing separately. (See page 6.)  3. You must be a U.S. citizen or resident alien all year. (See page 6.) 4. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). (See page 6.)  5. Your investment income must be $2,550 or less. (See page 6.)  6. You must have earned income. (See page 8.) 7. Your child must meet the relationship, age, and residency tests. (See page 10.)  8. Your qualifying child cannot be used by more than one person to claim the EIC. (See page 14.)  9. You cannot be a qualifying child of another person. (See page 15.) 10. You must be at least age 25 but under age 65. (See page 17.) 11. You cannot be the dependent of another person. (See page 17.) 12. You cannot be a qualifying child of another person. (See page 18.) 13. You must have lived in the United States more than half of the year. (See page 18.)   14. Your adjusted gross income (AGI) must be less than:  15. Your earned income must be less than:
·$33,178 ($34,178 for married filing jointly) if you have more than one qualifying child, ·$29,201 ($30,201 for married filing jointly) if you have one qualifying child, or ·$11,060 ($12,060 for married filing jointly) if you do not have a qualifying child. (See page 19.) ·$33,178 ($34,178 for married filing jointly) if you have more than one qualifying child, ·$29,201 ($30,201 for married filing jointly) if you have one qualifying child, or ·$11,060 ($12,060 for married filing jointly) if you do not have a qualifying child. (See page 20.)

Do I Need This Publication?

Although everyone can use this publication to figure their EIC, most people can choose to follow the steps in their tax form instructions instead.

Certain people must use this publication, instead of their form instructions, to see if they meet the rules to take the EIC. You are one of those people if you were sent here from Step 2 or Step 3 of the instructions for Form 1040 or Form 1040A.

What If I Was Sent Here From the Instructions for Form 1040 or Form 1040A?

If you were sent here from the instructions for Form 1040 or Form 1040A, you have met at least the first four rules to claim the credit. You can now go to Rule 5 on page 6.

How Do I Figure the Amount Of EIC?

If you can claim the EIC, you can either have the IRS figure the amount of your credit, or you can figure it yourself. To figure it yourself, you can complete EIC Worksheet A or B in chapter 4. Or, you can complete a worksheet in the instructions for the form you file.

How Can I Quickly Locate Specific Information?

You can use the index to look up specific information. In most cases, index entries will point you to headings, tables, worksheets, or to text in bold face.

How Can I Get EIC In My Paycheck In the Year 2003?

You may prefer to get some of next year's EIC throughout the year, rather than wait and get EIC after you file your tax return. Chapter 6 explains advance payment of EIC and tells how, if you have a qualifying child, you may be able to get some of the EIC in your paycheck.

Important Changes

New definition of earned income.   Earned income no longer includes nontaxable employee compensation. See Rule 6 and Rule 15.

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 14.

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.

Increased EIC on certain joint returns.   A married person filing a joint return now may get more EIC than someone with the same income but a different filing status. As a result, the EIC table now has different columns for married persons filing jointly than for everyone else. When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status.

Important Reminders

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 will not be considered income when determining whether you are eligible for the following benefit programs, or how much you can receive from these programs. However, if the amounts you receive are not spent within a certain period of time, they may count as an asset (or resource) and affect your eligibility.

  • Medicaid and supplemental security income (SSI).
  • Food stamps.
  • Low-income housing.

Temporary assistance for needy families (TANF) benefits may be affected. Please check with your state.

Disallowed EIC.   If you claim the EIC and it is later disallowed, you may have to complete an additional form if you want to claim the credit in a later year. See chapter 5 for more information.

Reporting advance payments of EIC received in 2002.   If you received advance payments of EIC in 2002, you must file Form 1040 or Form 1040A to report the payments. Your Form W-2, box 9, (as shown in Figure 1) will show the amount you received. Report the amount on line 59 (Form 1040) or line 37 (Form 1040A).

Figure 1. Reporting Advance EIC

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Figure 1. Reporting Advance EIC

Spanish version of Publication 596.   You can order Publicación 596SP, Crédito por Ingreso del Trabajo, from IRS. It is a Spanish translation of Publication 596. See How To Get Tax Help in the Appendix to find out how to order this and other IRS forms and publications.

Photographs of missing children.   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

You can e-mail us while visiting our web site at www.irs.gov.

You can write to us at the following address:


Internal Revenue Service
Tax Forms and Publications
W:CAR:MP:FP
1111 Constitution Ave. NW
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Rules for Everyone

Chapter 1.

This chapter discusses Rules 1 through 6. You must meet all six rules to qualify for the earned income credit. If you do not meet all six rules, you cannot get the credit and you do not need to read the rest of the publication.

Note. If you meet all six rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet.

Rule 1. You Must Have a Valid Social Security Number (SSN)

Valid SSN.   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 must also have a valid SSN. (See Rule 7 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.

U.S. citizen.   If you were a U.S. citizen when you received your SSN, you have a valid SSN.

Valid for work only with INS authorization.   If your social security card reads Valid for work with INS authorization, you have a valid SSN.

SSN missing or incorrect.   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC.

Other taxpayer identification number.   You cannot get the EIC if, instead of an SSN, you (or your spouse if filing a joint return) have an individual taxpayer identification number (ITIN). ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN.

No SSN.   If you do not have a valid SSN, put No directly to the right of line 64 (Form 1040), line 41 (Form 1040A), or print No on line 8 (Form 1040EZ). You cannot claim the EIC.

Getting an SSN.   If you (or your spouse if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the Social Security Administration.

Filing deadline approaching and still no SSN.   If the filing deadline is approaching and you still do not have an SSN, you have two choices.

  1. Request an automatic 4-month extension of time to file your return. You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. For more information, see the instructions for Form 4868.
  2. File the return on time without claiming the EIC. After receiving the SSN, file an amended return, Form 1040X, Amended U.S. Individual Income Tax Return, claiming the EIC. Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child.

Rule 2. 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, see Publication 501, Exemptions, Standard Deduction, and Filing Information.

Rule 3. You Must Be a U.S. Citizen or Resident Alien All Year

You cannot claim the earned income credit if you are a nonresident alien for any part of the year, unless:

  1. You are married to a U.S. citizen or a resident alien, and
  2. You choose to be treated as a resident for all of 2002 by filing a joint return. If you need more information on making this choice, get Publication 519, U.S. Tax Guide for Aliens.

Note.   If you make the choice in (2) above, you and your spouse are taxed on your worldwide income. You cannot claim any tax treaty benefits as a resident of a foreign country during a tax year in which the choice is in effect.

Rule 4. You Cannot File Form 2555 or Form 2555-EZ

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. See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for more detailed information.

Rule 5. Your Investment Income Must Be $2,550 or Less

You cannot claim the earned income credit unless your investment income is $2,550 or less. If your investment income is more than $2,550, you cannot claim the credit.

Form 1040EZ.   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words Form 1040EZ on line 2.

Form 1040A.   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9 (ordinary dividends), and 10 (capital gain distributions) on that form.

Form 1040.   If you file Form 1040, use Worksheet 1, below, to figure your investment income.

Worksheet 1: Investment Income If You Are Filing Form 1040

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Interest and Dividends
 1. Enter any amount from Form 1040, line 8a.  1.       
 2. Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b.  2.       
 3. Enter any amount from Form 1040, line 9.  3.       
 4. Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. (See instructions below for line 4 if your child received an Alaska Permanent Fund dividend.)  4.       
Capital Gain Net Income
 5. Enter the amount from Form 1040, line 13. If the amount on that line is a loss, enter zero.  5.       
 6. Enter any gain from Form 4797, Sales of Business Property, line 7. If the amount on that line is a loss, enter zero. (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead.)  6.       
 7. Subtract line 6 of this worksheet from line 5 of this worksheet. (If the result is less than zero, enter zero.)  7.       
Royalties and Rental Income from Personal Property
 8. Enter any royalty income from Schedule E, line 4, plus any income from the rental of personal property shown on Form 1040, line 21.  8.       
 9. Enter any expenses from Schedule E, line 21, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 34.  9.       
10. Subtract the amount on line 9 of this worksheet from the amount on line 8. (If the result is less than zero, enter zero.) 10.       
Passive Activities
11. Enter the total of any net income from passive activities (included on Schedule E, lines 26, 28a (col. (h)), 33a (col. (d)), and 39). (See instructions below for lines 11 and 12.) 11.       
12. Enter the total of any losses from passive activities (included on Schedule E, lines 26, 28b (col. (g)), 33b (col. (c)), and 39). (See instructions below for lines 11 and 12.) 12.       
13. Combine the amounts on lines 11 and 12 of this worksheet. (If the result is less than zero, enter zero.) 13.       
14. Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Enter the total. This is your Investment Income. 14.       
Instructions for line 4. To figure the amount to enter on line 4, start with the amount on line 6 of Form 8814. Multiply that amount by a percentage that is equal to any Alaska Permanent Fund dividends divided by the total amount of interest and dividend income on lines 1a and 2 of Form 8814. Subtract the result from the amount on line 6 of Form 8814. Example. Your 10-year-old child has taxable interest income of $500 and an Alaska Permanent Fund dividend of $2,000. You choose to report this income on your return. You enter $500 on line 1a of Form 8814, $2,000 on line 2, and $2,500 on line 4. You enter $1,000 on line 6 of Form 8814 and line 21 of Form 1040. You figure the amount to enter on line 4 of this worksheet as follows: $1,000 - ($1,000 × ($2,000 ÷ $2,500)) = $200. Instructions for lines 11 and 12. In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. To find out if the income on line 26 or line 39 of Schedule E is from a passive activity, see the Schedule E instructions. If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print NPA and the amount of that income (or loss) on the dotted line next to line 26.

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