Earned Income Credit

More than 20 million taxpayers claim this special break for low-income workers. And the IRS says another 5 million or so deserve the credit but fail to take it. Take a few minutes to make sure you don't miss out on a credit that could bring you a refund check.

Can I take the Earned Income Credit?

Help for those with low earnings

If you were married filing jointly and earned less than $41,646 ($38,646 for individuals, surviving spouses or heads of household) in 2008, you may qualify for this tax credit, or even a refund check. It's complicated, but the Earned Income Credit (EIC) is worth exploring if you or someone you know has low earnings.

The credit reduces any tax you owe, dollar-for-dollar.
If the credit wipes out your tax bill completely, you may actually get a refund for the rest of the credit.

TurboTax asks simple questions to help you find out if you qualify so you can get your biggest refund.

Tests for qualifying

First you have to qualify, then your income has to pass muster, and finally, if you have kids, they have to qualify. If you pass all these tests, you could get a credit of as much as $4,824 depending on the number of children you have.

Once you determine that you qualify for the credit, use the Earned Income Credit table found in the instructions for Form 1040 (or Forms 1040A or 1040EZ) to look up your income and find out the amount of credit you're entitled to.

You qualify if:

You have income from earnings (e.g., from a job, your own business, union strike benefits, certain long-term disability benefits)
You did not receive more than $2,950 in interest or dividends, or income from rentals, royalties or stock and other asset sales during the year.
You are single or, if married, do not use the Married Filing Separate status.
You, your spouse and children, if applicable, all have Social Security numbers.
You and your spouse are not being considered as a child on someone else's return for purposes of the earned income credit.
You are not excluding any income you earned in a foreign country from your return.
You are a citizen or resident of the U.S.
You have dependents.
You do not have a qualifying child, but you and your spouse are between 25 and 65, not the dependents of anyone else, and you have lived in the U.S. for more than half of the year.

How much can I earn and still qualify?

This credit is targeted at lower-income taxpayers, so if you earn "too much" you may not qualify. Just how much can you earn and still qualify? It depends on how many qualifying children you have (we'll define this in a moment). Those with the lowest income qualify for a full credit. Those with incomes above the phase-out threshold qualify for a partial credit until they reach the point where the credit is eliminated completely. The following table illustrates the maximum qualifying incomes for receiving the credit.

If you have:	Your earned income(and AGI) must be less than:	Your maximum credit will be:
No qualifying children	$12,880 ($15,880 if married and filing a joint return)	$438
1 qualifying child	$33,995 ($36,995 if married and filing a joint return)	$2,917
2 or more qualifying children	$38,646 ($41,646 if married and filing a joint return)	$4,824

Does my child qualify?

To qualify, the child must be:

Your son, daughter, stepchild, adopted child or a descendant.
Your foster child, placed with you by an authorized agency or court order.
Your brother, sister, stepbrother, stepsister or a descendant of one of these.
Age 18 or younger as of the end of the year (unless he or she is a full-time student, in which case the student must be 23 or younger). Exception: A person who is permanently and totally disabled at any time during the year qualifies, no matter how old.
A resident with you in the United States for more than half of the year.

Example:

You and your sister live together. You are 30; your sister is 15. When your parents died two years ago, you took over the care of your sister, but you did not adopt her. She is considered a qualifying child because she lived with you more than half of the year.

Who's an eligible foster child?

For the Earned Income Credit, a foster child is defined as an individual who is placed with you by an authorized placement agency or court order. The child must have lived with you for more than half of the year.

What about my welfare benefits?

The Earned Income Credit has no effect on certain welfare benefits. Any refund you receive because of the EIC will not be considered income when determining whether you are eligible for, or how much you can receive from, the following benefit programs: