| Pub. 17, Your Federal Income Tax |
2005 Tax Year |
36.
Earned Income Credit
Qualifying child. There are some changes to the definition of qualifying child. A qualifying child can include your eligible foster child, your
brother, or your
sister, whether or not you care for them as you would your own child. See Rule 8.
If you and someone else have the same qualifying child, only one of you can use that child to claim the following tax benefits:
the child's
exemption, the child tax credit, head of household filing status, the credit for child and dependent care expenses, and the
EIC. The other person
cannot take any of these five tax benefits unless he or she has a different qualifying child. For details, see Rule 9.
Earned income amount is more. The maximum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:
-
You have more than one qualifying child and you earned less than $35,263 ($37,263 if married filing jointly),
-
You have one qualifying child and you earned less than $31,030 ($33,030 if married filing jointly), or
-
You do not have a qualifying child and you earned less than $11,750 ($13,750 if married filing jointly).
Your adjusted gross income also must be less than the amount in the above list that applies to you. For details, see Rules 1 and
15.
Katrina Emergency Tax Relief Act of 2005. This Act provides tax relief for persons affected by Hurricane Katrina. Under the Act, you may be able to figure your 2005
EIC using your 2004
earned income if your 2005 earned income is less than your 2004 earned income.
You may also be able to claim a student as a qualifying child even if he or she was prevented from completing the normal school
term. See
Publication 4492.
Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased to $2,700. 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.
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 2006, you can receive part of it in each paycheck throughout the
year. See Advance
Earned Income Credit, later, for more information.
Online help. You can use the EITC Assistant at
www.irs.gov/eitc to find out if you are eligible for the
credit. The EITC Assistant is available in English and Spanish.
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.
The earned income credit (EIC) is a tax credit for certain people who work and have less than $37,263 of earned income. 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:
-
Qualify by meeting certain rules, and
-
File a tax return, even if you:
-
Do not owe any tax,
-
Did not earn enough money to file a return, or
-
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:
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 36-1, Earned Income Credit in a Nutshell.
Use Table 36-1 as a guide to Parts A, B, C, and D. The table is a summary of all the rules in each part.
Table 36-1. 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:
•$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or
•$11,750 ($13,750 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 $2,700 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:
•$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or
•$11,750 ($13,750 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 36-1.
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. You must also qualify to claim the EIC by meeting the rules described in this chapter.
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:
-
$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child,
-
$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or
-
$11,750 ($13,750 for married filing jointly) if you do not have a qualifying child.
Adjusted gross income (AGI).
AGI is the amount on line 38 (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 $32,500, you are single, and you have one qualifying child. You cannot claim the EIC because your AGI is not less
than $31,030.
However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than
$33,030.
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.
Table 36-1. 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:
•$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or
•$11,750 ($13,750 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 $2,700 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:
•$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child,
•$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or
•$11,750 ($13,750 for married filing jointly) if you do not have a qualifying child.
|
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 66a (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.
-
Request an automatic 6-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.
-
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:
-
You are married to a U.S. citizen or a resident alien, and
-
You choose to be treated as a resident for all of 2005 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 $2,700 or Less
You cannot claim the earned income credit unless your investment income is $2,700 or less. If your investment income is more
than $2,700, 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 includes all of the following types of income.
-
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.
-
Net earnings from self-employment.
-
Gross income received as a statutory employee.
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).
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. If you are filing a joint return
and both you and your
spouse received nontaxable combat pay, you can each make your own election. The amount of your nontaxable combat pay should
be shown on your Form W-2,
in box 12, with code Q.
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.
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.
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
includes amounts 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 EIC. 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.
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.
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.
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:
-
Relationship,
-
Age, and
-
Residency.
The three tests are illustrated in Figure 36-1. The paragraphs that follow contain more information about each test.
To be your qualifying child, a child must be your:
-
Son, daughter, stepchild, eligible foster child, or a descendant of any of them (for example, your grandchild), or
-
Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece
or
nephew).
The following definitions clarify the relationship test.
Adopted child.
An adopted child is always treated as your own child. The term “ adopted child” includes a child who was lawfully placed with you for legal
adoption.
Eligible foster child.
For the EIC, a person is your eligible foster child if the child is placed with you by an authorized placement agency
or by judgement, decree, or
other order of any court of competent jurisdiction. An authorized placement agency includes a state or local government agency.
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.
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. Debbie
is your eligible foster child.
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:
-
You can claim the child's exemption, or
-
The reason you cannot claim the child's exemption is that you gave that right to your child's other parent under the Special rule for
divorced or separated parents, described later.
Your child must be:
-
Under age 19 at the end of 2005,
-
A full-time student under age 24 at the end of 2005, or
-
Permanently and totally disabled at any time during 2005, 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:
-
A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled student body, or
-
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 Internet schools do not count as schools for the EIC.
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.
Permanently and totally disabled.
Your child is permanently and totally disabled if both of the following apply.
-
He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
-
A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.
Your child must have lived with you in the United States for more than half of 2005. The following definitions clarify the
residency test.
United States.
This means the 50 states and the District of Columbia. It does not include Puerto Rico or U.S. possessions such as
Guam.
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 2005 is treated as having lived with you for all of 2005 if your home was the child's
home the entire time he or
she was alive in 2005.
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
with you. Examples of a
special circumstance include:
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:
-
The year there is a determination that the child is dead, or
-
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 6 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 2005. You
cannot claim the EIC on the
basis of a qualifying child if:
-
Your qualifying child's SSN is missing from your tax return or is incorrect,
-
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
-
Instead of an SSN, your qualifying child has:
-
An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or
-
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 which of you, if otherwise
eligible, will take all
of the following tax benefits based on the qualifying child.
The other person cannot take any of these five tax benefits unless he or she has a different qualifying child.
If you and the other person(s) cannot agree and more than one person claims the EIC or the other tax benefits just
listed using the same child, the
tie-breaker rule (explained in Table 36-2) applies. However, the tie-breaker rule does not apply if the other person is your
spouse and you file a
joint return.
If a child is treated as the qualifying child of the noncustodial parent under the special rule for children of divorced or
separated parents,
described next, see Applying Rule 9 to divorced or separated parents, later.
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 2005, 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 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 may be able to treat the child as a qualifying child. See Example 5. But also see You can choose
which person will claim the EIC, earlier.
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 treat him as a qualifying child to claim the EIC (and, if
that person qualifies, the
other tax benefits listed in You can choose which person will claim the EIC, earlier). You agree to let your mother claim him.
This means, if you do not claim your son as a qualifying child for the EIC or any of the other tax benefits listed in You can choose which
person will claim the EIC, your mother can treat your son as a qualifying child to claim the EIC and any other tax benefit listed for which she
qualifies.
Example 2 - child lived with parent and grandparent.
The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child. In this case, you as
the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC and the other tax benefits
listed in You can
choose which person will claim the EIC. The IRS will disallow your mother's claim to the EIC and any other tax benefit listed, unless she has
another qualifying child.
Example 3 - 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 are qualifying children of both you and
your mother. Only one of you can claim each child as a qualifying child. However, you and your mother can split the three
qualifying children between
you. For example, you can use one child and your mother can use the other two.
Example 4 - 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, discussed next, you cannot claim the EIC. Only your mother may be able to treat your son as a qualifying child to claim
the EIC. If your mother meets all the other requirements for claiming the EIC, she can treat both you and your son as qualifying
children for the EIC.
Example 5 - 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 6 - separated parents.
You, your husband, and your 10-year-old son lived together until August 1, 2005, when your husband moved out of the household.
In August and
September, your son lived with you. For the rest of the year, your son lived with your husband. Your son is a qualifying child
of both you and your
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 husband are not divorced, legally separated, or separated under a written separation agreement, so the special rule for
divorced or separated
parents does not apply.
You and your husband will file separate returns. Your husband agrees to let you treat your son as a qualifying child. This
means, if your husband
does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed in You can choose which person will claim the
EIC, earlier, you can claim him as a qualifying child for the EIC and any other tax benefit listed for which you qualify. However,
you cannot
claim head of household filing status because you and your husband did not live apart the last 6 months of the year. As a
result, your filing status
is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. See Rule 3.
Example 7 - separated parents.
The facts are the same as in Example 6 except that you and your husband both claim your son as a qualifying child. In this case, only
your husband will be allowed to treat your son as a qualifying child. This is because, during 2005, the boy lived with him
longer than with you. You
cannot claim the EIC for persons either with or without a qualifying child. However, because you and your husband did not
live apart the last 6 months
of the year your husband cannot claim head of household filing status. As a result, his filing status is married filing separately,
so he cannot claim
the EIC or the credit for child and dependent care expenses. See Rule 3.
Example 8 - 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. Your son's father agrees to let you treat the child as a qualifying
child. This means, if
your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed in You can choose which
person will claim the EIC, earlier, you can claim him as a qualifying child for the EIC and any other tax benefit listed for which you qualify.
Table 36-2. When More Than One Person Claims EIC Using Same Child (Tie-Breaker Rule)
Caution: If a child is treated as the qualifying child of the noncustodial parent under the rules for divorced or separated
parents, described later, see Applying Rule 9 to divorced or separated parents.
| IF more than one person claims the the same child as a
qualifying 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 parents of the child, 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 parents of the child, 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.
|
Example 9 - unmarried parents.
The facts are the same as in Example 8 except that you and your son's father both claim your son as a qualifying child. In this case,
only your son's father will be allowed to treat your son as a qualifying child. This is because his AGI, $18,000, is more
than your AGI, $8,000. You
cannot claim the EIC for persons either with or without a qualifying child.
Example 10 - child did not live with a parent.
You and your 7-year-old niece, your sister's child, lived with your mother all year. 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. Your mother agrees
to let you treat the child as a qualifying child. This means, if your mother does not claim her as a qualifying child for
the EIC or any of the other
tax benefits listed in You can choose which person will claim the EIC, you can claim your niece as a qualifying child for the EIC and any
other tax benefit listed for which you qualify.
Example 11 - child did not live with a parent.
The facts are the same as in Example 10 except that you and your mother both claim your niece as a qualifying child. In this case, only
your mother will be allowed to treat your niece as a qualifying child. This is because your mother's AGI, $15,000, is more
than your AGI, $9,300.
Special rule for divorced or separated parents.
A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption,
but not for EIC) if all
of the following apply.
-
The parents:
-
Are divorced or legally separated under a decree of divorce or separate maintenance,
-
Are separated under a written separation agreement, or
-
Lived apart at all times during the last 6 months of the year.
-
The child received over half of his or her support for the year from the parents.
-
The child is in the custody of one or both parents for more than half of the year.
-
A decree of divorce or separate maintenance or written separation agreement that applies to 2005 provides that the noncustodial
parent can
claim the child as a dependent (and, in the case of a pre-1985 agreement, the noncustodial parent provides at least $600 for
the support of the child
during the year) or the custodial parent signs a written declaration that he or she will not claim the child as a dependent
for the year.
For details, see chapter 3. Also see, Applying Rule 9 to divorced or separated parents, later.
Applying Rule 9 to divorced or separated parents.
If a child is treated as the qualifying child of the noncustodial parent under the special rule for children of divorced
or separated parents
described earlier, the noncustodial parent can claim an exemption and the child tax credit for the child but cannot claim
the child as a qualifying
child for head of household filing status, the credit for child and dependent care expenses, or the EIC. If the child is the
qualifying child of more
than one other person, only one of those persons can claim the child as a qualifying child for head of household filing status,
the credit for child
and dependent care expenses, and the EIC. No other person can claim any of these three tax benefits unless he or she has a
different qualifying child.
If you and any other person file a return claiming the child as a qualifying child for any of these three tax benefits, the
IRS will disallow all but
one of the claims using the tie-breaker rule in Table 36-2.
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.
-
You are that person's son, daughter, stepchild, grandchild, or eligible foster child. Or, you are that person's brother, sister,
half
brother, half sister, stepbrother, or stepsister (or the child or grandchild of that person's brother, sister, half brother,
half sister, stepbrother,
or stepsister).
-
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.
-
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 66a (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:
-
Do not have a qualifying child, and
-
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.
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 2005. 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 2005. 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 66a (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 did not check the “You” box on line 5 of Form 1040EZ, and you entered $8,200 on that line.
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 did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $16,400 on
that line.
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 2005, 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 not checking the “You” box on line 5 of your Form
1040EZ and by entering $8,200 on that line. 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.
-
You are that person's son, daughter, stepchild, grandchild, or eligible foster child. Or, you are that person's brother, sister,
half
brother, half sister, stepbrother, or stepsister (or the child or grandchild of that person's brother, sister, half brother,
half sister, stepbrother,
or stepsister).
-
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.
-
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 66a (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 and provided more than half of your own support.
Because you meet the
relationship, age, and residency tests, you are a qualifying child of your mother for the EIC. 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 66a (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 Puerto Rico or U.S. possessions such as
Guam.
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 purposes of 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.
-
Have the IRS figure the EIC for you. If you want to do this, see IRS Will Figure the EIC for You.
-
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:
-
$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child,
-
$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or
-
$11,750 ($13,750 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 66a and 66b 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
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 66a and 66b. Put “ Clergy” on the dotted line next to line 66a (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 66a and 66b.
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.
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.
If you want the IRS to also figure the amount of your income tax, see chapter 30.
If you file Form 1040 and want the IRS to figure your credit for you, follow these steps.
-
Put “EIC” on the dotted line next to line 66a. Then, if you have any of the types of income described earlier under Inmates,
Deferred compensation plans, or Clergy, follow the instructions given there.
-
If you received nontaxable combat pay and are electing to include it in your earned income for the EIC, enter the amount on
line 66b (Form
1040). For details, see Nontaxable combat pay election in Rule 7.
-
Complete all other parts of your return that apply to you (including line 61), but do not fill in lines 71, 72, 73a, and 75.
If you do not
have a qualifying child, stop here.
-
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.
If you file Form 1040A and want the IRS to figure your credit for you, follow these steps.
-
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.
-
If you received nontaxable combat pay and are electing to include it in your earned income for the EIC, enter the amount on
line 41b (Form
1040A). For details, see Nontaxable combat pay election in Rule 7.
-
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.
-
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.
If you file Form 1040EZ and want the IRS to figure your credit for you, follow these steps.
-
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.
-
If you received nontaxable combat pay and are electing to include it in your earned income for the EIC, enter the amount on
line 8b (Form
1040EZ). For details, see Nontaxable combat pay election in Rule 7.
-
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.
-
Go to your form instruction booklet and turn to the instructions for lines 66a and 66b, and look for Worksheet A or Worksheet
B.
-
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.
-
Enter the amount of your earned income credit from Worksheet A or B on Form 1040, line 66a.
-
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.
-
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.
-
Go to your form instruction booklet and turn to the instructions for lines 41a and 41b, and look for the EIC Worksheet.
-
Complete the EIC Worksheet according to its instructions. Find the amount of your credit in the EIC Table in your form instruction
booklet.
-
Enter the amount of your earned income credit from line 6 of the EIC Worksheet on Form 1040A, line 41a.
-
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.
-
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.
-
Go to your form instruction booklet and turn to the instructions for lines 8a and 8b and look for the EIC Worksheet.
-
Complete the EIC Worksheet according to its instructions. Find the amount of your credit in the EIC Table in your form instruction
booklet.
-
Enter the amount of your earned income credit from line 6 of the EIC Worksheet on Form 1040EZ, line 8a.
-
Keep the EIC Worksheet for your records. Do not attach it to your income tax return.
The following two comprehensive examples (complete with filled-in forms) may be helpful.
-
John and Janet Smith, a married couple with one qualifying child and using Form 1040A.
-
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 2005. 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.
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 (2002).
Lines 4a and 4b.
The Smiths skip lines 4a and 4b because Amy was born after 1986.
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 2005.
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
$2,662. They enter $2,662 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 ($2,662) on
line 6.
Line 6.
The Smiths' EIC is $2,662.
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 2005. 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 $399.
She enters $399 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 $6,550. She leaves line 5 blank and enters the amount from line
2, $399, on line 6.
Line 6.
She enters $399 here and on Form 1040EZ, line 8a. Kelly's earned income credit is $399.
Advance Earned Income Credit
Do you expect to be eligible for the EIC this year (2006) 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 2007 when you file your tax return for the year 2006. 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.
-
You must expect that your earned income and AGI will each be less than $32,001 ($34,001 if you expect to file married filing
jointly).
-
You must expect to have a qualifying child.
-
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 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 2006
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 2006.
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 2006, you must file a 2006 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.
Receipt of advance payments you do not qualify for.
If you receive advance payments of EIC in 2006, and later find out that you are not eligible for some or all of them,
you still must report them on
your tax return.
You cannot use Form 1040EZ to report your advance payments. You must file Form 1040 or Form 1040A.
When to give your employer a new Form W-5.
The 2006 Form W-5 you give to your employer is valid until December 31, 2006. If you expect to be eligible for EIC
in 2007 and you want to receive
advance payments, you must give your employer a new Form W-5 in 2007. 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 2005
If you received advance payments of EIC in 2005, 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 61 (Form 1040) or line 37 (Form 1040A).
You cannot use Form 1040EZ to report your advance payments.
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:
-
$11,750 ($13,750 if married filing jointly) if you do not have a qualifying child,
-
$31,030 ($33,030 if married filing jointly) if you have one qualifying child, or
-
$35,263 ($37,263 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 $2,700 or less? (See Rule 6.)
|
□
|
□
|
|
6.
|
Is your total earned income at least $1 but less than:
-
$11,750 ($13,750 if married filing jointly) if you do not have a qualifying child,
-
$31,030 ($33,030 if married filing jointly) if you have one qualifying child, or
-
$35,263 ($37,263 if married filing jointly) if you have more than one qualifying child?
(See Rules 7 and 15.)
|
□
|
□
|
|
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.)
|
□
|
□
|
| |
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.)
|
□
|
□
|
|
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 the other person is not claiming any child-related tax benefits
using that child. Answer
“No” if you do not know whether the other person is claiming any child-related tax benefits using that child.
|
□
|
□
|
|
10.
|
Were you (or your spouse if filing a joint return) at least age 25 but under 65 at the end of 2005? (See Rule
11.)
|
□
|
□
|
|
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.)
|
□
|
□
|
|
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.)
|
□
|
□
|
|
*
|
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.
If you answered
“Yes” to questions 1 through 8 and “No” to question 9, see Rule 9 to help you determine whether you can
claim the EIC. If you answered “Yes” to questions 1 through 7 and “No” to question 8, answer questions 10 through 12
to see if you can claim the EIC without a qualifying child.
|
| |
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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