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Publication 596
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Step 2. Complete Form W-5 and Give It to Your EmployerIf you answered Yes to all the questions in Step 1, and you wish to get part of your EIC now, you must give your employer a Form W-5 for 2003. After you have read the instructions and completed Form W-5, give the lower part of the form to your employer. Keep the top part for your records. A part of a blank Form W-5 is shown here. You may get only part of your EIC during the year in advance payments. You will get the rest of the EIC you are entitled to when you file your tax return in 2004 and claim the EIC. Frequently Asked Questions About Form W-51. How do I get Form W-5? Ask your employer for the form. Or, see How To Get Tax Help on page 48. 2. What should I do if I have more than one employer? Give a Form W-5 to only one employer. 3. Can I give my employer a Form W-5 if my spouse has given her employer a Form W-5? Yes. 4. How often do I have to file Form W-5? The 2003 Form W-5 you give to your employer is valid until December 31, 2003. If you expect to be eligible for EIC 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 expect to be eligible for the EIC. 5. What should I do if my situation changes after I give Form W-5 to my employer? Give your employer a new Form W-5 if any situation shown in the following table applies to you for 2003.
Step 3. How To Report Advance Payments of EICIf you received advance payments of EIC in 2002, see Important Reminders on page 3 for information on reporting these payments. If you receive advance payments of EIC in 2003, you must file a 2003 tax return (even if you would not otherwise have to file) to report the payments and claim any additional EIC. Box 9 of your Form W-2 will show the amount you received. See the instructions for Form 1040 or Form 1040A for the line number on which you report advance payments of EIC. If you receive advance payments of EIC in 2003, and you later find out that you are not eligible for some or all of them, you still must report them on your tax return. You cannot use Form 1040EZ to report your advance payments. You must file Form 1040 or Form 1040A. Detailed ExamplesThe next few pages contain four detailed examples (with a filled-in Schedule EIC and EIC Worksheets) that may be helpful if you have questions about claiming the EIC. Example 1. Cynthia and Jerry GreyCynthia and Jerry Grey have two children, Kirk, age 8, and Susanne, age 6. The children lived with Cynthia and Jerry for all of 2002. Cynthia earned wages of $15,000 and Jerry had wages of $10,000. The Greys received $50 in interest on their savings account. They had no other income in 2002. Cynthia and Jerry have the 2002 Form 1040A and instructions. They want to see if they qualify for the EIC, so they follow the steps in the instructions for line 41. Step 1. The amount Cynthia and Jerry entered on Form 1040A, line 21, was $25,050. They both have valid social security numbers (SSNs). They will file a joint return. Neither Cynthia nor Jerry is a nonresident alien. Therefore, the answers they give to the questions in Step 1 allow them to proceed to Step 2. Step 2. The only investment income the Greys have is their $50 interest income. That amount is not more than $2,550, so they go to Step 3. Step 3. In Step 3 of the instructions for line 41, the Greys find out that they do not have to use Publication 596. However, they decide to get and use the publication because they heard that it has information they want about advance EIC. When they read Publication 596, they find that they have already met Rules 1 - 5 and can start with Rule 6. Rule 6. The Greys meet this rule because they have earned income (Cynthia's and Jerry's wages). They go to Rule 7 in chapter 2 because they believe they have qualifying children. Rule 7. Cynthia and Jerry meet this rule because both Kirk and Susanne meet the relationship, residency, and age tests. In addition, both children have valid SSNs. Rule 8. The Greys meet this rule because Kirk and Susanne are not qualifying children of anyone else. Rule 9. Cynthia and Jerry meet this rule because they themselves are not qualifying children of anyone else. They meet all the rules so far, so they go to chapter 4. Rule 14. Cynthia and Jerry's AGI is $25,050 ($25,000 + $50), the amount on line 21 of their Form 1040A. They meet Rule 14. Rule 15. Cynthia and Jerry complete Worksheet 2 (not shown) and figure their total earned income to be $25,000, the amount of their combined wages. They meet this rule. Completing EIC Worksheet A. Cynthia and Jerry want to figure their EIC themselves, so they complete EIC Worksheet A (shown here). They complete EIC Worksheet A, rather than EIC Worksheet B, because they are not self-employed, church employees, or filing Schedule C or C-EZ as statutory employees. Part 5
Example 2. David and Judy BrownDavid and Judy Brown have three children - Karl, age 4, and twins, Karin and Susan, age 2. David worked and earned $16,000 in taxable wages. He received $1,500 in unemployment compensation. David also began a consulting business. After expenses, David had a loss of $1,000. Judy made crafts and sold them at a flea market. She had a profit of $706. In addition, David and Judy received $50 in interest from a savings account. Judy completes Schedule C-EZ and reports the $706 profit. She also completes Schedule SE and figures self-employment tax of $100. She puts this figure on line 56 (Form 1040) and deducts $50, one-half of her self-employment tax, on line 29 (Form 1040). David completes Schedule C and reports his $1,000 loss. David and Judy combine their Schedules C and C-EZ to report a loss of $294 ($706 - $1,000) on line 12 of their Form 1040. David will not complete Schedule SE because he does not have any net earnings from self-employment. David and Judy read Publication 596 and find that they meet all the rules to claim the EIC. For example, they will file a joint return (Rule 2). Their investment income ($50 interest from a savings account) is less than $2,550 (Rule 5). All three of their children are qualifying children (Rule 7). Their AGI of $17,206 ($16,000 + $50 + $706 - $1,000 + $1,500 - $50) is less than $34,178 (Rule 14). Completing EIC Worksheet B. Because the Browns have self-employment income and want to figure their credit themselves, they complete EIC Worksheet B (shown later). Part 1. David and Judy begin EIC Worksheet B with Part 1 because Judy is self-employed and will file Schedule SE. They enter $706 and $50 from Judy's Schedule SE on lines 1a and 1d respectively. They figure line 1e to be $656 ($706 - $50). Part 2. Because David is not filing Schedule SE, the Browns enter David's $1,000 loss on lines 2b and 2c. They put this amount in parentheses because it is a loss. They skip Part 3 because neither David nor Judy is a statutory employee. Part 4. The Browns enter $16,000 (the earned income they figured using Worksheet 2) on line 4a. They combine lines 1e, 2c, 3, and 4a and enter the result, $15,656, on line 4b. Because that amount is less than $34,178, they qualify for the credit, so they enter $15,656 on line 6. Part 5. David and Judy look up the amount on line 6 ($15,656) in the EIC Table. To find their credit, they look in the column for Married filing jointly with Two children. They enter the amount of $3,897 on line 7. They enter their AGI ($17,206 from line 34 of Form 1040) on line 8 and see that it is different from the amount on line 6. They look up $17,206 in the EIC Table and enter the amount of $3,570 on line 10. Part 6. The Browns enter $3,570 on line 11. This is the smaller of the line 7 amount ($3,897) and the line 10 amount ($3,570). They also enter $3,570 on line 64 of their Form 1040. They will now complete Schedule EIC (not shown), including information for two of their three children, and attach it to their return. They will keep EIC Worksheet B for their records. Browns' EIC Worksheet B, Page 1 Browns' EIC Worksheet B, page 2 Example 3. Sharon RoseSharon Rose is age 63 and retired. She received $7,000 in social security benefits during the year and $5,850 from a part-time job. She also received a taxable pension of $5,400. Sharon had no other income. Her AGI on line 22 of Form 1040A is $11,250 ($5,850 + $5,400). Sharon is not married and lived alone in the United States for the entire year. She cannot be claimed as a dependent on anyone else's return. She does not have any investment income and does not have a qualifying child. Sharon reads the steps for eligibility in her Form 1040A instructions. In Step 1 she discovers that, because her AGI ($11,250) is not less than $11,060, she cannot take the EIC. She completes the rest of her Form 1040A and files it with the IRS. Example 4. Steve and Linda GreenSteve and Linda Green have two children, Amy, age 8, and Carol, age 10, who lived with them all year. Steve owns and operates a dairy farm that had a loss of $2,000 in 2002. Steve reports this loss on Schedule F and on Form 1040, line 18. Steve qualifies and chooses to use the optional method to figure net earnings, so he uses Section B of Schedule SE. He enters $1,600 on lines 15 and 4b of Section B of Schedule SE. Steve figures self-employment tax of $244. He deducts one-half of it ($122) on line 29 (Form 1040). Linda had wages of $15,000, which she reports on Form 1040, line 7. She also received advance EIC payments of $1,140, which she reports on Form 1040, line 59. Steve and Linda had a $1,000 gain from the sale of stock and a $3,000 gain from the sale of raised dairy cows they had held for 3 years. They report the $3,000 gain on Form 4797, Sales of Business Property. They do not have any other sales to report on Form 4797, so they enter $3,000 on line 7 of Form 4797 and on line 11, column (f), of Schedule D. (They have no prior year section 1231 losses.) They report their net capital gain of $4,000 ($1000 + $3,000) from Schedule D on Form 1040, line 13. The Greens read Publication 596 and find that they meet all the rules to claim the EIC. For example, they will file a joint return (Rule 2).Their investment income, figured on Worksheet 1 (shown here), is $1,000, which is less than $2,550 (Rule 5). Also, their AGI of $16,878 ($15,000 + $4,000 - $2,000 - $122) is less than $34,178 (Rule 14). They use EIC Worksheet B (shown here) to figure their EIC of $3,644. They also complete Schedule EIC (not shown) and attach it to their Form 1040. Greens' Worksheet 1: Investment Income Worksheet Greens' EIC Worksheet B, page 1 Greens' EIC Worksheet B, page 2 AppendixEarned Income Credit (EIC) Table Earned Income Credit (EIC) Table Earned Income Credit (EIC) Table Earned Income Credit (EIC) Table Earned Income Credit (EIC) Table Earned Income Credit (EIC) Table How To Get Tax HelpYou can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help. Contacting your Taxpayer Advocate. If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. To contact your Taxpayer Advocate:
For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS. Free tax services. To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.
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EIC Eligibility Checklist
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