Earned Income Credit

Can I take the Earned Income Credit because my income was very low this year?

If you were married filing jointly and earned less than $39,783 ($37,783 for individuals, surviving spouses or heads of household) in 2007, 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.

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 $4,716 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.

Do I Qualify?

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 $2,900 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 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, your spouse and children, if applicable, all have Social Security numbers.
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:	Then your earned income (and your AGI) must be less than:	And your maximum credit will be:
No qualifying children	$12,590 ($14,590 if married and filing a joint return)	$428
1 qualifying child	$33,241 ($35,241 if married and filing a joint return)	$2,853
2 or more qualifying children	$37,783 ($39,783 if married and filing a joint return)	$4,716

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 2 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.