Earned Income Credit Qualifications

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Question or Topic

The Question: What are the qualifications for the Earned Income Credit?

Objectives

Determine whether a person can meet the qualifications for an earned income credit.

Earned Income Credit - IF IRS Questions You

	The Answer

EITC Overview

The Earned Income Tax Credit (EITC), sometimes called the Earned Income Credit (EIC), is a refundable Federal income tax credit for low-income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. The credit reduces the amount of Federal tax owed and can result in a refund check. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

Income and family size determine the amount of the EITC. To qualify for the credit, both the earned income and the modified adjusted gross income for 2001 must be less than $28,281 for a taxpayer with one qualifying child, $32,121 for a taxpayer with more than one qualifying child, and $10,710 for a taxpayer with no qualifying children. The EITC Eligibility Checklist on the last page of IRS' Publication 596, Earned Income Credit, may be used to quickly determine eligibility for the credit.

Rules for Everyone

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)

Rule 2. Your Filing Status Cannot Be "Married Filing Separately"

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

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

Rule 5. Your Investment Income Must Be $2,450 or Less

Rule 6. You Must Have Earned Income

You Cannot Be A Dependent of Another Taxpayer

Your Income Cannot Exceed Specified Income Limits

Rules If You Do Not Have a Qualifying Child

Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. This chapter discusses Rules 10 through 13. You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child.

Note. You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next.

Rule 10. You Must Be at Least Age 25 but Under Age 65

Rule 11. You Cannot Be the Dependent of Another Person

Rule 12. You Cannot Be a Qualifying Child of Another Person

Rule 13. You Must Have Lived in the United States More Than Half of the Year

Rules If You Have a Qualifying Child

If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. This chapter discusses Rules 7 through 9. You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child.

Note. 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 chapter 1 and this chapter, read chapter 4 to find out what to do next.

No qualifying child. If you do not meet Rule 7, you do not have a qualifying child. Read chapter 3 to find out if you can get the earned income credit without a qualifying child.

Rule 7. Your Child Must Meet the Relationship, Age, and Residency Tests

Rule 8. Your Qualifying Child Cannot Be the Qualifying Child of Another Person With a Higher Modified AGI

Rule 9. You Cannot Be a Qualifying Child of Another Person

	Solutions

Solutions are dependent upon facts & circumstances, law and the objectives. These elements vary from one time to another, from one circumstance to another and from person or entity to another.

Kit to Prepare for Your Adviser

EIC Eligibility Checklist

The following provide a space for you to type or click on the responses. No information is gathered or retained from the form. The form is only for your personal use and can be printed after completion. You may then submit the printed form to Bob Parrish CPA, P.C. by the delivery method most convenient to you.

Misc Information About This Tax Issue

My Name
Qualifying Dependent Name -
Tax Form and Tax Year -

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.)
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.)
3.	Answer YES if you are not filing Form 2555 or Form 2555-EZ. Otherwise, answer NO. (See Rule 4.)
4.	Is your investment income $2,450 or less? (See Rule 5.)
5.	Is your total earned income at least $1 but less than: $10,710 if you do not have a qualifying child, $28,281 if you have one qualifying child, or $32,121 if you have more than one qualifying child? (See Rules 6 and 14.)
6.	Is your modified AGI less than: $10,710 if you do not have a qualifying child, $28,281 if you have one qualifying child, or $32,121 if you have more than one qualifying child? (See Rule 15.)
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.)
	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 questions 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.)
9.	Is your child a qualifying child only for you? Answer YES if your qualifying child is also a qualifying child for another person but your modified AGI is higher than the other person's. (See Rule 8.)
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.)
11.	Were you (or your spouse if filing a joint return) at least age 25 but under age 65 at the end of 2001? (See Rule 10.)
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 (or your spouse if filing a joint return) can be claimed as a dependent on someone else's return. (See Rule 11.)
*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.

EITC Information for Tax Professionals

Due Diligence Requirements

The information on this page explains the tax law by describing the due diligence requirements that assist you in determining whether or not a client is eligible for the EITC.

The Taxpayer Relief Act of 1997 added code section 6695(g), which requires preparers of Federal income tax returns or claims for refund involving the earned income tax credit to meet the due diligence requirements. Failure to do so could result in a $100 penalty for each failure. The rules for 2000 returns are:

You must complete Form 8867 (Rev. December 2000), Paid Preparer's Earned Income Credit Checklist (or your own form as long as it provides the same information).
You must complete the EIC Worksheet in the Form 1040, 1040A, or 1040EZ Instructions (or your own worksheet as long as it provides the same information as the 1040, 1040A, or 1040EZ worksheet(s)).
You must have no knowledge, or have reason to know, that any of the information used to determine your client's eligibility for, and the amount of, the EITC is incorrect and you must ask the client if the information appears incorrect.
You must keep the following information for 3 years:
- The completed Form 8867 (or your own form), and;
- The EIC worksheet (or your own worksheet), and;
- A record of how and when the information used to determine eligibility for and the amount of, the EITC was obtained by the preparer.

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