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Video: Filing Schedule EIC Earned Income Credit

Updated for Tax Year 2012


OVERVIEW

Does some of the income you report on your tax return come from employment, or work you perform as a sole proprietor or independent contractor? If your answer is yes, you satisfy one of the requirements for taking the earned income credit.

 

Note: The amounts specified in this video are for tax years 2011 and 2012.


Hello, I'm Scott from TurboTax with some important information about the earned income credit and Schedule EIC.

Does some of the income you report on your tax return come from employment or work you perform as a sole proprietor or independent contractor?

If your answer is yes, you satisfy one of the requirements for taking the earned income credit, but there are other factors to consider before you can reduce your tax bill or receive a refund by using the Earned Income Credit. As the name of the credit implies, you must have earned income, meaning that you receive compensation from a job, or for products or services you provide. But in order to qualify for the credit, both your adjusted gross income and your earned income must be greater than zero and less than the thresholds set by the IRS.

In addition, you must not file as married filing separately or report more than $3,150 ($3,200 in 2012) of investment income on your tax return for tax year 2011. Investment income simply refers to the payments you receive for things like bank interest, stock dividends, stock sales, etc., essentially any income that you don't have to work for.

There is no requirement that you must be eligible to claim a child as your dependent to take the credit. But if you do claim a child as a dependent, it's often easier to qualify for the credit since the income thresholds increase for each child you claim. When you do have children and want to claim the earned income credit, the IRS requires you to fill out a Schedule EIC with your tax return. You don't calculate your earned income credit on the schedule; rather, you use it to provide information on the children you are eligible to claim as dependents.

TurboTax makes it easy to prepare a Schedule EIC. You just need to input information regarding your eligible dependents, including your relationship to each one of them, their birthdays as well as a few other pieces of information which you'll probably be able to answer off the top of your head. And if you don't have any children, you might be able to still take the credit if you are at least 25 years old by the end of the tax year and aren't the dependent of another taxpayer.

But remember, if you don't have children, it's not necessary to submit a Schedule EIC. Instead, TurboTax will calculate your credit on the earned income credit worksheet and report the amount on your tax return. Remember, when you use TurboTax to file your tax return, we'll ask you simple questions and let you know which deductions and credits you're eligible for. We'll also handle all the calculations and fill in all the right forms.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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