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Pub. 17, Your Federal Income Tax 2004 Tax Year

Chapter 38 - Earned Income Credit

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Table of Contents

What's New

Nontaxable combat pay election. You can now elect to have your nontaxable combat pay included in earned income for the earned income credit. For details, see Rule 7 and Rule 15.

Earned income amount is more. The amount you can earn and still get the credit has increased for 2004. The amount of income you earn must be less than:

  • $30,338 ($31,338 for married filing jointly) with one qualifying child,

  • $34,458 ($35,458 for married filing jointly) with more than one qualifying child, or

  • $11,490 ($12,490 for married filing jointly) if you do not have a qualifying child.

Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased to $2,650. See Rule 6.

Form 8836. If you received Form 8836, Qualifying Children Residency Statement, you have been selected to participate in the EIC certification pilot program. File the form with the IRS, following the form instructions, to show that your child met the residency test described in Rule 8. If you did not receive the form, you do not need to get it or file it. You have to file Form 8836 only if it was mailed to you.

Reminders

Increased EIC on certain joint returns. A married person filing a joint return may get more EIC than someone with the same income but a different filing status. As a result, the EIC table has different columns for married persons filing jointly than for everyone else. When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have.

Advance payment of the earned income credit in your paycheck. If you expect to qualify for the earned income credit in 2005, you can receive part of it in each paycheck throughout the year. See Advance Earned Income Credit, later, for more information.

EIC questioned by IRS. The IRS may ask you to provide documents to prove you are entitled to claim the EIC. We will tell you what documents to send us. These may include: birth certificates, school records, medical records, etc. We will also send you a letter with the name, address and telephone number of the IRS employee assigned to your case. The process of establishing your eligibility will delay your refund.

Earned income credit has no effect on certain welfare benefits. Any refund you receive because of the EIC and any advance EIC payments you receive generally will not be considered income when determining whether you are eligible for the following benefit programs, or how much you can receive from these programs.

  • Medicaid and supplemental security income (SSI).

  • Food stamps.

  • Low-income housing.

Temporary assistance for needy families (TANF) benefits may be affected. Please check with your state.

Introduction

The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $35,458. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.

How do you get the earned income credit?   To claim the EIC, you must:

  1. Qualify by meeting certain rules, and

  2. File a tax return, even if you:

    1. Do not owe any tax,

    2. Did not earn enough money to file a return, or

    3. Did not have income taxes withheld from your pay.

When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Or, if you prefer, you can let the IRS figure the credit for you.

How will this chapter help you?

This chapter will explain the following:

  • The rules you must meet to qualify for the EIC,

  • How to figure the EIC, and

  • How to get advance payment of the EIC in your paycheck.

Useful Items - You may want to see:

Publication

  • 596 Earned Income Credit (EIC)

Form (and Instructions)

  • Schedule EIC
    Earned Income Credit (Qualifying Child Information)

  • W-5
    Earned Income Credit Advance Payment Certificate

  • 8862
    Information To Claim Earned Income Credit After Disallowance

Do You Qualify for the Credit?

To qualify to claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone. Then you must meet the rules in Part B, Rules If You Have a Qualifying Child, or Part C, Rules If You Do Not Have a Qualifying Child. There is one final rule you must meet in Part D, Figuring and Claiming the EIC. You qualify for the credit if you meet all the rules in each part that applies to you.

  • If you have a qualifying child, the rules in Parts A, B, and D apply to you.

  • If you do not have a qualifying child, the rules in Parts A, C, and D apply to you.

Table 38-1, Earned Income Credit in a Nutshell.   Use Table 38-1 as a guide to Parts A, B, C, and D. The table is a summary of all the rules in each part.

Table 38-1. Earned Income Credit in a Nutshell

First, you must meet all the rules in this column. Second, you must meet all the rules in one of these columns, whichever applies. Third, you must meet the rule in this column.
Part A
Rules for Everyone		 Part B.
Rules If You Have a Qualifying Child		 Part C.
Rules If You Do Not Have a Qualifying Child		 Part D.
Figuring and Claiming the EIC
1. Your adjusted gross income (AGI) must be less than:
•$34,458 ($35,458 for married filing jointly) if you have more than one qualifying child,

•$30,338 ($31,338 for married filing jointly) if you have one qualifying child, or

•$11,490 ($12,490 for married filing jointly) if you do not have a qualifying child. 		2. You must have a valid social security number.
3. Your filing status cannot be “Married filing separately.”
4. You must be a U.S. citizen or resident alien all year.
5. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income).
6. Your investment income must be $2,650 or less.
7. You must have earned income. 		8. Your child must meet the relationship, age, and residency tests.
9. Your qualifying child cannot be used by more than one person to claim the EIC.
10. You cannot be a qualifying child of another person. 		11. You must be at least age 25 but under age 65.
12. You cannot be the dependent of another person.
13. You cannot be a qualifying child of another person.
14. You must have lived in the United States more than half of the year. 		15. Your earned income must be less than:
•$34,458 ($35,458 for married filing jointly) if you have more than one qualifying child,

•$30,338 ($31,338 for married filing jointly) if you have one qualifying child, or

•$11,490 ($12,490 for married filing jointly) if you do not have a qualifying child.

Do you have a qualifying child?   You have a qualifying child only if you have a child who meets the three tests described in Rule 8 and illustrated in Figure 38-1.

If Improper Claim Made in Prior Year

If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return to claim the EIC.

However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. For example, if your arithmetic is incorrect, the IRS can correct it. If you do not provide a correct social security number, the IRS can deny the EIC. These kinds of errors are called math or clerical errors.

If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. If your error was due to fraud, then you cannot claim the EIC for the next 10 years.

More information.   See chapter 5 in Publication 596 for more detailed information about the disallowance period and Form 8862.

Part A. Rules for Everyone

This part of the chapter discusses Rules 1 through 7. You must meet all seven rules to qualify for the earned income credit. If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the chapter.

If you meet all seven rules in this part, then read either Part B or Part C (whichever applies) for more rules you must meet.

Rule 1. Your AGI Must Be Less Than:

  • $34,458 ($35,458 for married filing jointly) if you have more than one qualifying child,

  • $30,338 ($31,338 for married filing jointly) if you have one qualifying child, or

  • $11,490 ($12,490 for married filing jointly) if you do not have a qualifying child.

Adjusted gross income (AGI).    AGI is the amount on line 37 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC.

Example.

Your AGI is $30,500, you are single, and you have one qualifying child. You cannot claim the EIC because your AGI is not less than $30,338. However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $31,338.

Community property.   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. This is different from the community property rules that apply under Rule 7.

Rule 2. You Must Have a Valid Social Security Number (SSN)

To claim the EIC, you (and your spouse if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Any qualifying child listed on Schedule EIC also must have a valid SSN. (See Rule 8 if you have a qualifying child.)

If your social security card (or your spouse's if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. An example of a federally funded benefit is Medicaid.

If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U.S. citizen or permanent resident, ask the SSA for a new social security card without the legend.

U. S. citizen.   If you were a U. S. citizen when you received your SSN, you have a valid SSN.

Valid for work only with INS or DHS authorization.   If your social security card reads “Valid for work only with INS authorization,” or “Valid for work only with DHS authorization,” you have a valid SSN.

SSN missing or incorrect.   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC.

Other taxpayer identification number.   You cannot get the EIC if, instead of an SSN, you (or your spouse if filing a joint return) have an individual taxpayer identification number (ITIN). ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN.

No SSN.   If you do not have a valid SSN, put “No” next to line 65a (Form 1040), line 41a (Form 1040A), or line 8a (Form 1040EZ). You cannot claim the EIC.

Getting an SSN.   If you (or your spouse if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the Social Security Administration.

Filing deadline approaching and still no SSN.   If the filing deadline is approaching and you still do not have an SSN, you have two choices.

  1. Request an automatic 4-month extension of time to file your return. You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. For more information, see chapter 1.

  2. File the return on time without claiming the EIC. After receiving the SSN, file an amended return (Form 1040X, Amended U.S. Individual Income Tax Return) claiming the EIC. Attach a filled-in Schedule EIC if you have a qualifying child.

Rule 3. Your Filing Status Cannot Be Married Filing Separately

If you are married, you usually must file a joint return to claim the EIC. Your filing status cannot be “Married filing separately.”

Spouse did not live with you.   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. In that case, you may be able to claim the EIC. For detailed information about filing as head of household, see chapter 2.

Rule 4. You Must Be a U.S. Citizen or Resident Alien All Year

You cannot claim the earned income credit if you are a nonresident alien for any part of the year, unless:

  1. You are married to a U.S. citizen or a resident alien, and

  2. You choose to be treated as a resident for all of 2004 by filing a joint return. If you need more information on making this choice, see Publication 519, U.S. Tax Guide for Aliens.

Note.

If you make the choice in (2) above, you and your spouse are taxed on your worldwide income. You cannot claim any tax treaty benefits as a resident of a foreign country during a tax year in which the choice is in effect.

Rule 5. You Cannot File Form 2555 or Form 2555-EZ

You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. U.S. possessions are not foreign countries. See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for more detailed information.

Rule 6. Your Investment Income Must Be $2,650 or Less

You cannot claim the earned income credit unless your investment income is $2,650 or less. If your investment income is more than $2,650, you cannot claim the credit. For most people, investment income is the total of the following amounts.

  • Taxable interest (line 8a of Form 1040 or 1040A).

  • Tax-exempt interest (line 8b of Form 1040 or 1040A).

  • Dividend income (line 9a of Form 1040 or 1040A).

  • Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A).

If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2.

However, if you are reporting income or loss from the rental of personal property on Form 1040, line 21, or are filing Schedule E (Form 1040), Form 8814, or Form 4797, see Rule 6 in chapter 1 of Publication 596 for more information.

Rule 7. You Must Have Earned Income

This credit is called the earned income credit because, to qualify, you must work and have earned income. If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. If you are an employee, earned income includes all the taxable income you get from your employer. If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the instructions for Form 1040.

Earned Income

Earned income includes all of the following types of income.

  1. Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below.

  2. Net earnings from self-employment.

  3. Gross income received as a statutory employee.

Nontaxable combat pay election.   You can elect to have your nontaxable combat pay included in earned income for the earned income credit. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Figure the credit with and without your nontaxable combat pay before making the election. If you make the election, you must include in earned income all nontaxable combat pay you received. See the instructions for the form you are using (Form 1040, Form 1040A, or Form 1040EZ).

Wages, salaries, and tips.   Wages, salaries, and tips you receive for working are reported to you on Form W-2, box 1. You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040).

Self-employed persons and statutory employees.   If you are self-employed or received income as a statutory employee, you must use the Form 1040 instructions to see if you qualify to get the EIC.

Approved Form 4361 or Form 4029

This section is for persons who have an approved:

  • Form 4361, Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, or

  • Form 4029, Application for Exemption from Social Security and Medicare Taxes and Waiver of Benefits.

Each approved form exempts certain income from social security taxes. Each form is discussed in this section in terms of what is or is not earned income for purposes of the EIC.

Form 4361.   Even if you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation. Amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.

Table 38-1. Earned Income Credit in a Nutshell

First, you must meet all the rules in this column. Second, you must meet all the rules in one of these columns, whichever applies. Third, you must meet the rule in this column.
Part A
Rules for Everyone		 Part B.
Rules If You Have a Qualifying Child		 Part C.
Rules If You Do Not Have a Qualifying Child		 Part D.
Figuring and Claiming the EIC
1. Your adjusted gross income (AGI) must be less than:
•$34,458 ($35,458 for married filing jointly) if you have more than one qualifying child,

•$30,338 ($31,338 for married filing jointly) if you have one qualifying child, or

•$11,490 ($12,490 for married filing jointly) if you do not have a qualifying child. 		2. You must have a valid social security number.
3. Your filing status cannot be “Married filing separately.”
4. You must be a U.S. citizen or resident alien all year.
5. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income).
6. Your investment income must be $2,650 or less.
7. You must have earned income. 		8. Your child must meet the relationship, age, and residency tests.
9. Your qualifying child cannot be used by more than one person to claim the EIC.
10. You cannot be a qualifying child of another person. 		11. You must be at least age 25 but under age 65.
12. You cannot be the dependent of another person.
13. You cannot be a qualifying child of another person.
14. You must have lived in the United States more than half of the year. 		15. Your earned income must be less than:
•$34,458 ($35,458 for married filing jointly) if you have more than one qualifying child,

•$30,338 ($31,338 for married filing jointly) if you have one qualifying child, or

•$11,490 ($12,490 for married filing jointly) if you do not have a qualifying child.

Form 4029.   Even if you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. However, amounts you received as a self-employed individual do not count as earned income. Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040.

Disability Benefits

If you retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age.

Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b).

Disability insurance payments.   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. It does not matter whether you have reached minimum retirement age. If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J.”

Income That Is Not Earned Income

Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Do not include any of these items in your earned income.

Earnings while an inmate.   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. This includesamounts for work performed while in a work release program or while in a halfway house.

Workfare payments.   Nontaxable workfare payments are not earned income for the EIC. These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities.

Community property.   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws.

Nontaxable military pay.   Nontaxable pay for members of the Armed Forces is not considered earned income for the earned income credit. Examples of nontaxable military pay are combat pay. the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). See Publication 3, Armed Forces' Tax Guide, for more information.

  
This icon paragraph informs taxpayer of the ability to include nontaxable combat pay in earned income.
 Combat pay. You can elect to have your nontaxable combat pay considered earned income for the EIC. See Nontaxable combat pay election , earlier.

Part B. Rules If You Have a Qualifying Child

If you have met all of the rules in Part A, read Part B to see if you have a qualifying child.

Part B discusses Rules 8 through 10. You must meet all three of these rules, in addition to the rules in Parts A and D, to qualify for the earned income credit with a qualifying child.

Qualifying child

You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. (You cannot file Form 1040EZ). You also must complete Schedule EIC and attach it to your return. If you meet all the rules in Part A and this part, read Part D to find out what to do next.

Caution
If you do not meet Rule 8 , you do not have a qualifying child. Read Part C to find out if you can get the earned income credit without a qualifying child.

Rule 8. Your Child Must Meet the Relationship, Age, and Residency Tests

Your child is a qualifying child if your child meets three tests. The three tests are:

  1. Relationship,

  2. Age, and

  3. Residency.

The three tests are illustrated in Figure 38-1. The paragraphs that follow contain more information about each test.

Relationship Test

To be your qualifying child, a child must be your:

  • Son, daughter, adopted child, stepchild, or a descendant (for example, your grandchild) of any of them, or

  • Brother, sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them whom you cared for as you would your own child, or

  • Eligible foster child.

The following definitions clarify the relationship test.

Adopted child.   An adopted child is always treated as your own child. Your adopted child includes a child placed with you for adoption by an authorized placement agency, even if the adoption is not final.

  An authorized placement agency includes any person or court authorized by state law to place children for legal adoption.

Child not a dependent.   Your child does not have to be your dependent to be a qualifying child, unless he or she is married.

Married child.   If your child was married at the end of the year, he or she does not meet the relationship test unless either of these two situations applies to you:

  1. You can claim the child's exemption, or

  2. The reason you cannot claim the child's exemption is that you gave that right to your child's other parent:

    1. When you completed Form 8332 or a similar written statement, or

    2. In a pre-1985 agreement (such as a separation agreement or divorce decree).

Eligible foster child.   For the EIC, a person is your eligible foster child if both of the following are true.

  1. The child is placed with you by an authorized placement agency. An authorized placement agency includes a state or local government agency or court. It also includes a tax-exempt organization licensed by a state. In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children.

  2. You cared for that child as you would your own child.

Example.

Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. You care for her as you would your own child. Debbie is your eligible foster child.

Age Test

Your child must be:

  1. Under age 19 at the end of 2004,

  2. A full-time student under age 24 at the end of 2004, or

  3. Permanently and totally disabled at any time during 2004, regardless of age.

The following example and definitions clarify the age test.

Example.

Your son turned 19 on December 10. Unless he was disabled or a full-time student, he is not a qualifying child because, at the end of the year, he was not under age 19.

Full-time student.   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance.

Student defined.   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year:

  1. A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled student body, or

  2. A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government.

The 5 calendar months need not be consecutive.

School defined.   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. However, on-the-job training courses, correspondence schools, and night schools do not count as schools for the EIC. (But see Night school, later.)

Vocational high school students.   Students who work on co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students.

Night school.   Your child is not a full-time student if he or she attends school only at night. However, full-time attendance at a school may include some attendance at night as part of a full-time course of study.

Permanently and totally disabled.   Your child is permanently and totally disabled if both of the following apply.

  1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition.

  2. A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

Residency Test

Your child must have lived with you in the United States for more than half of 2004. The following definitions clarify the residency test.

United States.   This means the 50 states and the District of Columbia. It does not include U.S. possessions, such as Guam and Puerto Rico.

Homeless shelter.   Your home can be any location where you regularly live. You do not need a traditional home. For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test.

Military personnel stationed outside the United States.    U.S. military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC.

Extended active duty.   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days.

Birth or death of a child.   A child who was born or died in 2004 is treated as having lived with you for all of 2004 if your home was the child's home the entire time he or she was alive in 2004.

Temporary absences.   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time lived at home. Examples of a special circumstance include:

  • Illness,

  • School attendance,

  • Detention in a juvenile facility,

  • Business,

  • Vacation, and

  • Military service.

Kidnapped child.    A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. This treatment applies for all years until the child is returned. However, the last year this treatment can apply is the earlier of:

  1. The year there is a determination that the child is dead, or

  2. The year the child would have reached age 18.

  If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 5 of Schedule EIC.

Social security number.   Your qualifying child must have a valid social security number (SSN) unless the child was born and died in 2004. You cannot claim the EIC on the basis of a qualifying child if:

  1. Your qualifying child's SSN is missing from your tax return or is incorrect,

  2. Your qualifying child's social security card says “Not valid for employment” and was issued only for use in getting a federally funded benefit, or

  3. Instead of an SSN, your qualifying child has:

    1. An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or

    2. An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final.

  If you have two qualifying children and only one has a valid SSN, you can claim the EIC only on the basis of that child. For more information about SSNs, see Rule 2.

Rule 9. Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC

Sometimes a child meets the rules to be a qualifying child of more than one person. However, only one person can treat that child as a qualifying child and claim the EIC using that child. The paragraphs that follow will help you decide who can claim the EIC when more than one person has the same qualifying child.

You can choose which person will claim the EIC.    If you and someone else have the same qualifying child, you and the other person(s) can decide who will claim the credit using that qualifying child. But if you and the other person(s) cannot agree and more than one person claims the credit using the same child, the tie-breaker rule (explained in Table 38-2, on the next page) applies. If the other person is your spouse and you file a joint return, this rule does not apply.

If another person claims the EIC using this child.   If your EIC is denied because your qualifying child is treated under this rule as the qualifying child of another person for 2004, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC for people who do not have a qualifying child. If you do not have another qualifying child, you cannot take the EIC. Put “No” beside line 65a (Form 1040) or line 41a (Form 1040A).

If the other person cannot claim the EIC.   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you can treat the child as a qualifying child. See Example 4 below.

Example 1 – child lived with parent and grandparent.

You and your 2-year-old son lived with your mother all year. You are 25 years old. Your only income was $9,000 from a part-time job. Your mother's only income was $20,000 from her job. Your son is a qualifying child of both you and your mother because he meets the relationship, age, and residency tests for both you and your mother. However, only one of you can use him to claim the EIC. You and your mother may choose which of you will treat the child as a qualifying child to claim the EIC. However, if you and she disagree and both use him to claim the EIC, you as the child's parent will be the only one allowed to claim the credit using this child.

Example 2 – three children lived with parent and grandparent.

The facts are the same as in Example 1, except that you also have two other young children who lived with you and your mother and are qualifying children of both you and your mother. Only one of you can use each child to claim the EIC. However, you and your mother can split the three qualifying children between you. For example, you can use one child to claim the EIC and your mother can use the other two.

Example 3 – parent is qualifying child of grandparent.

The facts are the same as in Example 1, except that you are only 18 years old. This means you are a qualifying child of your mother. Because of Rule 10, you cannot claim the EIC. Only your mother may be able to treat your son as a qualifying child to claim the EIC.

Example 4 – parent can claim EIC because grandparent cannot.

The facts are the same as in Example 1, except that your mother earned $50,000 from her job. Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son.

Example 5 – divorced parents.

You, your husband, and your 10-year-old son lived together until July 1, 2004, when your husband moved out of the household. In July and August, your son lived with your husband. In September and October, the boy lived with you. On November 1, 2004, you and your husband were divorced. For the rest of the year, your son lived with your ex-husband, who was given custody. Your son is a qualifying child of both you and your ex-husband because your son lived with each of you for more than half the year and because he met the relationship and age tests for both of you.

You and your ex-husband may choose which of you will treat the child as a qualifying child to claim the EIC. However, if you and he are unable to agree and both use the child to claim the EIC, only your ex-husband will be allowed to claim the credit using this child. This is because, during 2004, the child lived with him longer than with you. You cannot claim the EIC for persons either with or without a qualifying child.

Example 6 – unmarried parents.

You, your 5-year-old son, and your son's father lived together all year. You and your son's father are not married. Your son is a qualifying child of both you and his father because he meets the relationship, age, and residency tests for both you and his father. You earned $8,000 and your son's father earned $18,000. Neither of you had any other income. You and your son's father may choose which of you will treat the child as a qualifying child to claim the EIC. However, if you and he are unable to agree and both use the child to claim the EIC, only the father will be allowed to claim the credit using this child. This is because his AGI ($18,000) was more than your AGI ($8,000). You cannot claim the EIC for persons either with or without a qualifying child.

Example 7 – child did not live with a parent.

You and your 7-year-old niece lived with your mother all year. You care for your niece as you would your own child. You are 25 years old, and your only income was $9,300 from a part-time job. Your mother's only income was $15,000 from her job. Your niece is a qualifying child of both you and your mother because she meets the relationship, age, and residency tests for both you and your mother. However, only one of you can treat her as a qualifying child to claim the EIC. You and your mother may choose which of you will use the child to claim the EIC. However, if you and she are unable to agree and both use the child to claim the EIC, only your mother will be allowed to claim the credit using this child. This is because her AGI ($15,000) is higher than your AGI ($9,300).

Table 38-2. When More Than One Person Claims EIC Using Same Child (Tie-Breaker Rule)

IF more than one person claims the EIC using the same child and . . .   THEN . . .
Only one of the persons is the child's parent   Only the parent can treat the child as a qualifying child.
Two of the persons are the child's parent, and they do not file a joint return together   Only the parent with whom the child lived the longest during the year can treat the child as a qualifying child.
Two of the persons are the child's parent, the child lived with each parent the same amount of time during the year, and the parents do not file a joint return together   Only the parent with the highest adjusted gross income (AGI) can treat the child as a qualifying child.
None of the persons are the child's parent   Only the person with the highest AGI can treat the child as a qualifying child.

Rule 10. You Cannot Be a Qualifying Child of Another Person

You are a qualifying child of another person (your parent, guardian, foster parent, etc.) if all of the following statements are true.

  1. You are that person's son, daughter, adopted child, stepchild, grandchild, or eligible foster child. Or, you are that person's brother, sister, stepbrother, or stepsister (or the child or grandchild of that person's brother, sister, stepbrother, or stepsister) and that person cares for you as his or her own child.

  2. At the end of the year you were under age 19, or under age 24 and a full-time student, or any age if you were permanently and totally disabled at any time during the year.

  3. You lived with that person in the United States for more than half of the year.

For more details about the tests to be a qualifying child, see Rule 8.

If you (or your spouse if filing a joint return) are a qualifying child of another person, you cannot claim the EIC. This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Put “No” beside line 65a (Form 1040) or line 41a (Form 1040A).

Example.

You and your daughter lived with your mother all year. You are 22 years old and attended a trade school full time. You had a part-time job and earned $5,700. You had no other income. Because you meet the relationship, age, and residency tests, you are a qualifying child of your mother. She can claim the EIC if she meets all the other requirements. Because you are your mother's qualifying child, you cannot claim the EIC. This is so even if your mother cannot or does not claim the EIC.

Part C. Rules If You Do Not Have a Qualifying Child

Read this part if you:

  1. Do not have a qualifying child, and

  2. Have met all the rules in Part A.


Part C discusses Rules 11 through 14. You must meet all four of these rules, in addition to the rules in Parts A and D, to qualify for the earned income credit without a qualifying child.

Caution
If you have a qualifying child, the rules in this part do not apply to you. You can claim the credit only if you meet all the rules in Parts A, B, and D. See Rule 8 to find out if you have a qualifying child.

Rule 11. You Must Be at Least Age 25 but Under Age 65

You must be at least age 25 but under age 65 at the end of 2004. If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2004. It does not matter which spouse meets the age test, as long as one of the spouses does.

If neither you nor your spouse meets the age test, you cannot claim the EIC. Put “No” next to line 65a (Form 1040), line 41a (Form 1040A), or line 8a (Form 1040EZ).

Example 1.

You are age 28 and unmarried. You meet the age test.

Example 2.

You are married and filing a joint return. You are age 23 and your spouse is age 27. You meet the age test because your spouse is at least age 25 but under age 65.

Rule 12. You Cannot Be the Dependent of Another Person

If you are not filing a joint return, you meet this rule if:

  • You checked box 6a on Form 1040 or 1040A, or

  • You checked the “No” box on line 5 of Form 1040EZ.

If you are filing a joint return, you meet this rule if:

  • You checked both box 6a and box 6b on Form 1040 or 1040A, or

  • You and your spouse checked the “No” box on line 5 of Form 1040EZ.

If you are not sure whether someone else can claim you (or your spouse if filing a joint return) as a dependent, read the rules for claiming a dependent in chapter 3.

If someone else can claim you (or your spouse if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the credit.

Example 1.

In 2004, you were age 25, single, and living at home with your parents. You worked and were not a student. You earned $7,500. Your parents cannot claim you as a dependent. When you file your return, you claim an exemption for yourself by checking the “No” box on line 5 of your Form 1040EZ. You meet this rule.

Example 2.

The facts are the same as in Example 1, except that you earned $2,000. Your parents can claim you as a dependent but decide not to. You do not meet this rule. You cannot claim the credit because your parents could have claimed you as a dependent.

Rule 13. You Cannot Be a Qualifying Child of Another Person

You are a qualifying child of another person (your parent, guardian, foster parent, etc.) if all of the following statements are true.

  1. You are that person's son, daughter, adopted child, stepchild, grandchild, or eligible foster child. Or, you are that person's brother, sister, stepbrother, or stepsister (or the child or grandchild of that person's brother, sister, stepbrother, or stepsister) for whom that person cares as his or her own child.

  2. At the end of the year you were under age 19, or under age 24 and a full-time student, or any age if you were permanently and totally disabled at any time during the year.

  3. You lived with that person in the United States for more than half of the year.

If you (or your spouse if filing a joint return) are a qualifying child of another person, you cannot claim the EIC. This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Put “No” next to line 65a (Form 1040), line 41a (Form 1040A), or line 8a (Form 1040EZ).

Example.

You lived with your mother all year. You are age 26 and permanently and totally disabled. Your only income was from a community center where you went three days a week to answer telephones. You earned $3,400 for the year. Because you meet the relationship, age, and residency tests, you are a qualifying child of your mother. She can claim the EIC if she meets all the other requirements. Because you are a qualifying child of your mother, you cannot claim the EIC. This is so even if your mother cannot or does not claim the EIC.

Rule 14. You Must Have Lived in the United States More Than Half of the Year

Your home (and your spouse's if filing a joint return) must have been in the United States for more than half the year.

If it was not, put “No” next to line 65a (Form 1040), line 41a (Form 1040A), or line 8a (Form 1040EZ).

United States.   This means the 50 states and the District of Columbia. It does not include U.S. possessions, such as Guam and Puerto Rico.

Homeless shelter.   Your home can be any location where you regularly live. You do not need a traditional home. If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule.

Military personnel stationed outside the United States.   U.S. military personnel stationed outside the United States on extended active duty (defined in Rule 8) are considered to live in the United States during that duty period for the EIC.

Part D. Figuring and Claiming the EIC

Read this part if you have met all the rules in Parts A and B, or all the rules in Parts A and C.

Part D discusses Rule 15. You must meet this rule, in addition to the rules in Parts A and B, or Parts A and C, to qualify for the earned income credit.

This part of the chapter also explains how to figure the amount of your credit. You have two choices.

  1. Have the IRS figure the EIC for you. If you want to do this, see IRS Will Figure the EIC for You.

  2. Figure the EIC yourself. If you want to do this, see How To Figure the EIC Yourself.

Rule 15. Your Earned Income Must Be Less Than:

  • $34,458 ($35,458 for married filing jointly) if you have more than one qualifying child,

  • $30,338 ($31,338 for married filing jointly) if you have one qualifying child, or

  • $11,490 ($12,490 for married filing jointly) if you do not have a qualifying child.

Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Earned income is explained in detail in Rule 7.

Figuring earned income.   If you are self-employed, a statutory employee, or a member of the clergy or church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions.

  Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 65a and 65b or the Form 1040A instructions for lines 41a and 41b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b.

  When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). You will then reduce that amount by any amount included on that line and described in the following list.

  • Scholarship or fellowship grants not reported on a Form W-2. A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit.

  • Inmates. Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. This includes amounts received for work performed while in a work release program or while in a halfway house. If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ).

  • Deferred compensation plans. A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457(b) plan is not considered earned income for the earned income credit. If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). This amount may be reported in box 11 of your Form W-2. If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity.

Clergy.   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also reported on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 65a and 65b. Put “Clergy” on the dotted line next to line 65a (Form 1040).

Church employees.    A church employee means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. If you received wages as a church employee and included any amount on both line 5a of Schedule SE and line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 65a and 65b.

IRS Will Figure the EIC for You

The IRS will figure the amount of your EIC for you if you follow the steps explained in this section.

Caution
Please do not ask the IRS to figure your EIC unless you are eligible for it. Read the rules in Parts A, B, C, and D to see if you qualify.

Tip
If you want the IRS to also figure the amount of your income tax, see chapter 32.

Form 1040

If you file Form 1040 and want the IRS to figure your credit for you, follow these steps.

  1. Put EIC on the dotted line next to line 65a. Then, if you have any of the types of income described earlier under Inmates, Deferred compensation plans, or Clergy, follow the instructions given there.

  2. Complete all other parts of your return that apply to you (including line 60), but do not fill in lines 70, 71, 72a, and 74. If you do not have a qualifying child, stop here.

  3. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

Form 1040A

If you file Form 1040A and want the IRS to figure your credit for you, follow these steps.

  1. Put EIC to the left of the entry space for line 41a. Then, if you have any of the types of income described earlier under Inmates or Deferred compensation plans, follow the instructions given there.

  2. Complete all other parts of your return that apply to you (including line 37), but do not fill in lines 43, 44, 45a, and 47. If you do not have a qualifying child, stop here.

  3. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

Form 1040EZ

If you file Form 1040EZ and want the IRS to figure your credit for you, follow these steps.

  1. Put EIC in the space to the left of line 8a. Then if you have any of the types of income described earlier under Inmates or Deferred compensation plans, follow the instructions given there.

  2. Complete all other parts of your return that apply to you, but do not fill in lines 9, 11a, or 12.

How To Figure the EIC Yourself

To figure the EIC yourself use the EIC Worksheet in the instructions for the form you are using (Form 1040, Form 1040A, or Form 1040EZ).

Form 1040 and EIC Worksheet.   If you file Form 1040 and want to figure the credit yourself, follow these steps.

  1. Go to your form instruction booklet and turn to the instructions for lines 65a and 65b, and look for Worksheet A or Worksheet B.

  2. Complete the EIC Worksheet that applies to your situation according to its instructions. Complete Worksheet B if you were self-employed, a member of the clergy or a church employee who files Schedule SE, or a statutory employee filing Schedule C or C-EZ. Find the amount of your credit in the EIC Table in your instruction booklet.

  3. Enter the amount of your earned income credit from Worksheet A or B on Form 1040, line 65a.

  4. Keep the EIC Worksheet for your records. Do not attach it to your income tax return. If you do not have a qualifying child, stop here.

  5. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

Form 1040A and EIC Worksheet.   If you file Form 1040A and want to figure the credit yourself, follow these steps.

  1. Go to your form instruction booklet and turn to the instructions for lines 41a and 41b, and look for the EIC Worksheet.

  2. Complete the EIC Worksheet according to its instructions. Find the amount of your credit in the EIC Table in your form instruction booklet.

  3. Enter the amount of your earned income credit from line 6 of the EIC Worksheet on Form 1040A, line 41a.

  4. Keep the EIC Worksheet for your records. Do not attach it to your income tax return. If you do not have a qualifying child, stop here.

  5. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

Form 1040EZ and EIC Worksheet.   If you file Form 1040EZ and want to figure the credit yourself, follow these steps.

  1. Go to your form instruction booklet and turn to the instructions for lines 8a and 8b and look for the EIC Worksheet.

  2. Complete the EIC Worksheet according to its instructions. Find the amount of your credit in the EIC Table in your form instruction booklet.

  3. Enter the amount of your earned income credit from line 6 of the EIC Worksheet on Form 1040EZ, line 8a.

  4. Keep the EIC Worksheet for your records. Do not attach it to your income tax return.

Examples

The following two comprehensive examples (complete with filled-in forms) may be helpful.

  1. John and Janet Smith, a married couple with one qualifying child and using Form 1040A.

  2. Kelly Green, age 30, a student, with no qualifying child and using Form 1040EZ.

Example 1. John and Janet Smith (Form 1040A)

John and Janet Smith are married and will file a joint return. They have one child, Amy, who is 3 years old. Amy lived with John and Janet for all of 2004. John worked and earned $9,500. Janet worked part of the year and earned $1,500. Their earned income and AGI are $11,000. John and Janet qualify for the earned income credit and fill out the EIC Worksheet and Schedule EIC. The Smiths will attach Schedule EIC to Form 1040A when they send their completed return to the IRS.

They took the following steps to complete Schedule EIC and the EIC Worksheet.

Completing Schedule EIC

The Smiths complete Schedule EIC because they have a qualifying child. They enter “John and Janet Smith” and John's SSN (the SSN that appears first on their Form 1040A) on the line at the top of Schedule EIC. The Smiths then fill out Qualifying Child Information (lines 1–6).

Line 1.   The Smiths enter Amy's first name and last name in the column “Child 1.”

Line 2.   They enter Amy's SSN.

Line 3.   They enter Amy's year of birth (2001).

Lines 4a and 4b.   The Smiths skip lines 4a and 4b because Amy was born after 1985.

Line 5.   The Smiths enter “Daughter.” This line shows Amy's relationship to John and Janet.

Line 6.   The Smiths enter “12.” This is how many months Amy lived with them in 2004.

Completing the EIC Worksheet

Next, the Smiths will complete the EIC Worksheet to figure their earned income credit.

Line 1.   The Smiths enter $11,000 (their earned income).

Line 2.   The Smiths go to the Earned Income Credit Table in the Form 1040A instructions. The Smiths find their income of $11,000 within the range of $11,000 to $11,050. They follow this line across to the column that describes their filing status and number of children and find $2,604. They enter $2,604 on line 2.

Line 3.   The Smiths enter their AGI of $11,000.

Line 4.   The Smiths check the “Yes” box because lines 1 and 3 are the same ($11,000). They skip line 5 and enter the amount from line 2 ($2,604) on line 6.

Line 6.   The Smiths' EIC is $2,604.

Example 2. Kelly Green (Form 1040EZ)

Kelly Green is age 30 and a full-time student. She lived with her parents in the United States for all of 2004. She had a part-time job and earned $6,240. She earned $20 interest on a savings account. She is not eligible to be claimed as a dependent on her parents' return. Although she lived with her parents, she is not their qualifying child because she does not meet the age test. She does not have any children.

Kelly qualifies for the earned income credit. Kelly will file Form 1040EZ and complete the EIC Worksheet.

Completing the EIC Worksheet

Kelly figures the amount of her earned income credit on the EIC Worksheet as follows.

Line 1.   She enters $6,240 (her earned income).

Line 2.   Kelly goes to the Earned Income Credit Table in the forms instruction booklet. She finds her earned income of $6,240 in the range of $6,200 to $6,250. Kelly follows this line across to the column that describes her filing status and number of children and finds $390. She enters $390 on line 2.

Line 3.   Kelly enters $6,260 (her AGI).

Line 4.   Kelly checks the “No” box because lines 1 and 3 are not the same.

Line 5.   Kelly checks the “Yes” box because the amount on line 3 ($6,260) is less than $6,400. She leaves line 5 blank and enters the amount from line 2, $390, on line 6.

Line 6.   She enters $390 here and on Form 1040EZ, line 8a. Kelly's earned income credit is $390.

Advance Earned Income Credit

Do you expect to be eligible for the EIC this year (2005) and to have a qualifying child? If so, you can choose to get payments of the EIC in your paycheck now instead of waiting to get your EIC all at once in 2006 when you file your tax return for the year 2005. These payments are called advance EIC payments. This chapter explains how you may be able to get them this year and how to report them on your tax return.

Who can get the advance payment of the earned income credit?   To get part of the earned income credit paid to you throughout the year in your paycheck, you must meet all the following rules.

  1. You must expect that your earned income and AGI will each be less than a certain amount. The amount in 2004 was $30,338 ($31,338 if you expected to file married filing jointly). The amount for 2005 will be higher. (See the 2005 Form W-5 for the 2005 amount.)

  2. You must expect to have a qualifying child.

  3. You must expect to meet all the rules in Parts A, B, and D of this chapter or in the instructions for Form W-5.

Persons who are not entitled to receive advance payments.    Under certain circumstances, even if you meet these rules, you may not be entitled to get EIC. If your wages are not subject to federal income tax, social security tax, or Medicare tax withholding, you cannot get the advance payment of the earned income credit. If you are a farm worker and are paid on a daily basis, your employer is not required to pay you the advance amount of the credit.

How To Get Advance Payments for 2005

If you meet the rules stated above under Who can get the advance payment of the earned income credit, give your employer a Form W-5, Earned Income Credit Advance Payment Certificate, for 2005.

After you have read the instructions and completed Form W-5, give the lower part of the form to your employer. Keep the top part for your records.

More than one employer.   If you have more than one employer, give a certificate to only one of them. If you are married and both you and your spouse are employed and expect to qualify for the credit, you may give a Form W-5 to your employer and your spouse may give one to his or her employer.

  If you receive advance payments of EIC in 2005, you must file a 2005 tax return (even if you would not otherwise have to file) to report the payments and claim any additional EIC. Box 9 of your Form W-2 will show the amount you received. See the instructions for Form 1040 or Form 1040A for the line number on which you report advance payments of EIC.

Caution
You cannot use Form 1040EZ to report your advance payments. You must file Form 1040 or Form 1040A.

Receipt of advance payments you do not qualify for.   If you receive advance payments of EIC in 2005, and later find out that you are not eligible for some or all of them, you still must report them on your tax return.

When to give your employer a new Form W-5.   The 2005 Form W-5 you give to your employer is valid until December 31, 2005. If you expect to be eligible for EIC in 2006 and you want to receive advance payments, you must give your employer a new Form W-5 in 2006. Do this each year you expect to be eligible for the EIC.

  If you no longer want to get advance payments or if your situation changes and you no longer qualify for the earned income credit, you must give your employer a new Form W-5. Check the “No” box on line 1 of the new form.

  If your spouse files a Form W-5 with his or her employer, you must file a new Form W-5 with your employer. Check the “Yes” box on line 3.

Advance Payments Received in 2004

If you received advance payments of EIC in 2004, you must file Form 1040 or Form 1040A to report the payments. Your Form W-2, box 9, will show the amount you received. Report the amount on line 60 (Form 1040) or line 37 (Form 1040A).

Caution
You cannot use Form 1040EZ to report your advance payments.

Smith's Schedule EIC

Smith's EIC Worksheet

EIC worksheet-Kelly

EIC Eligibility Checklist

You may claim the EIC if you answer “Yes” to all the following questions.*
      Yes No
1. Is your AGI less than:

  • $11,490 ($12,490 if married filing jointly) if you do not have a qualifying child,

  • $30,338 ($31,338 if married filing jointly) if you have one qualifying child, or

  • $34,458 ($35,458 if married filing jointly) if you have more than one qualifying child?
    (See Rule 1.)


□ □
2. Do you, your spouse, and your qualifying child each have a valid SSN? (See Rule 2.)

□ □
3. Is your filing status married filing jointly, head of household, qualifying widow(er), or single? (See Rule 3.)
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 4.)

□ □
4. Answer “Yes” if you are not filing Form 2555 or Form 2555-EZ. Otherwise, answer “No”. (See Rule 5.)

□ □
5. Is your investment income $2,650 or less? (See Rule 6.)

□ □
6. Is your total earned income at least $1 but less than:

  • $11,490 ($12,490 if married filing jointly) if you do not have a qualifying child,

  • $30,338 ($31,338 if married filing jointly) if you have one qualifying child, or

  • $34,458 ($35,458 if married filing jointly) if you have more than one qualifying child?
    (See Rules 7 and 15.)


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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 10 and 13.)
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  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 8.)

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9. Is your child a qualifying child only for you? Answer “Yes” if your qualifying child also meets the tests to be a qualifying child of another person, but either (a) the other person is not claiming the EIC using that child, or (b) if both you and the other person claim the EIC using that child, Rule 9 will allow only you to treat the child as a qualifying child. (See Rule 9.)

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10. Were you (or your spouse if filing a joint return) at least age 25 but under 65 at the end of 2004? (See Rule 11.)

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11. 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 12.)

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12. 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 14.)
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* 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.

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