Example 1. Cynthia & Jerry Grey

Cynthia and Jerry Grey have two children and are both employed.

Cynthia and Jerry Grey have two children, Kirk, age 8, and Susanne, age 6. The children lived with Cynthia and Jerry for all of 2000. 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 2000.

Cynthia and Jerry have the 2000 Form 1040A and instructions. They want to see if they qualify for the EIC, so they follow the steps for lines 38a and 38b in the instructions.

Step 1. The amount Cynthia and Jerry entered on Form 1040A, line 20, was $25,050. They both have valid social security numbers (SSNs) that allow them to work. 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 $2,400, so they go to Step 3.

Step 3. In Step 3 of the instructions for lines 38a and 38b, 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 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.

Rule 15. Cynthia and Jerry's AGI is $25,050 ($25,000 + $50), the amount on line 19a of their Form 1040A. They have no tax-exempt income or partly nontaxable pensions or annuities, so their modified AGI is also $25,050. They meet Rule 15.

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

1. Cynthia and Jerry enter their total earned income ($25,000) on line 1.
2. They look up $25,000 in the EIC Table in the Appendix for Two children. They enter the amount of $1,290 on line 2.
3. They enter on line 3 their modified AGI ($25,050) and see that it is different from the amount on line 1.
4. They look up $25,050 in the EIC Table and enter the amount of $1,280 on line 5.
5. They enter $1,280 on line 6. This is the smaller of the line 2 amount ($1,290) and the line 5 amount ($1,280).
6. The Greys do not owe alternative minimum tax (line 7) so they enter their EIC of $1,280 on line 8. They also enter that amount on line 38a of their Form 1040A. They will now complete Schedule EIC (shown here) and attach it to their return. They will keep EIC Worksheet A for their records.

Earned Income Credit

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