Earned Income Table Includes Taxable wages, salaries, and tips Union strike benefits Taxable long-term disability benefits received prior to minimum retirement age Net earnings from self-employment Gross income of a statutory employee Household employee income Nontaxable combat pay election Non-Employee compensation The rental value of a home or a housing allowance provided to a minister as part of the minister s pay (Out of Scope) Interest and dividends Earned Income Does not include Social security and railroad retirement benefits Welfare benefits Workfare payments Pensions and annuities Veteran s benefits (including VA rehabilitation payments) Workers compensation benefits Alimony Child support Nontaxable foster-care payments Unemployment compensation Taxable scholarship or fellowship grants that are not reported on Form W-2 Earnings for work performed while an inmate at a penal institution* or on work release Salary deferrals (for example, under a 40(k) or 403(b) plan or the Federal Thrift Savings Plan) The value of meals or lodging provided by an employer for the convenience of the employer Disability Insurance payments Excludable dependent care benefits (line 24 of Form 244) Salary reductions such as under a cafeteria plan Excludable employer-provided educational assistance benefits (may be shown in box 3 of Form W-2) Anything else of value received from someone for services performed, if it is not currently taxable TIP Common EIC Filing Errors Claiming a child who does not meet the residency and relationship requirements Married taxpayers incorrectly filing as a single or head of household Incorrectly reporting income, particularly income and expenses from self employment Incorrect social security numbers TaxWise EIC worksheet is calculated incorrectly *Note: This particular income is subtracted from the earned income on the EIC Worksheet in the section titled EIC. I-
Summary of EIC Eligibility Requirements Part A Part B Part C Rules for Everyone Rules If You Have Rules If You Do Not a Qualifying Child Have a Qualifying Child Taxpayers & qualifying children Child must meet the relationship, Must be at least age 25 but under must all have SSN that is valid for age, residency test and joint return age 65 as of December 3.* employment. tests. If child is married, see additional rules in Publication 7 Filing status cannot be married Qualifying child cannot be used Cannot be the dependent of filing separately. by more than one person to claim another person. the EIC. Must be a U.S. citizen or resident Cannot be a qualifying child of Must have lived in the United alien all year. another person. States more than half the year. Cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). Investment income must be $3,350 or less. Cannot be a qualifying child of another person. Part D Earned Income and AGI Limitations You must have earned income to qualify for this credit. Your earned income and AGI must be less than: $46,997 ($52,427 for married filing jointly) if you have three or more qualifying children, $43,756 ($49,86 for married filing jointly) if you have two qualifying children, $38,5 ($43,94 for married filing jointly) if you have one qualifying child, or $4,590 ($20,020 for married filing jointly) if you do not have a qualifying child. Cannot be a qualifying child of another person. TIP Disallowance of the Earned Income Credit Form 8862, Information to Claim Earned Income Credit After Disallowance, must be attached to the return of any taxpayer whose EIC claim was denied or reduced for any reason other than a math or clerical error. If the taxpayer s EIC was denied or reduced as a result of a math or other clerical error, Form 8862 is not required. If the IRS determined a taxpayer claimed the EIC due to reckless or intentional disregard of the EIC rules the taxpayer cannot claim the EIC for 2 tax years. If the error was due to fraud, then the taxpayer cannot claim the EIC for 0 tax years. See Publication 596, Earned Income Credit, for specific guidance. *Taxpayers turning 25 on January st are considered to be 25 as of December 3st. Taxpayers reaching the age of 65 on January st are still considered 64 as of December 3st. Note: Taxpayers meeting the above age criteria should file a paper return to avoid a potential rejected electronic filed return. I-2
interview tips EIC General Eligibility Rules Probe/Action: Ask the taxpayer: Calculate the taxpayer s earned income and adjusted gross If YES,gotoStep2. income (AGI) for the tax year. Are both less than: If NO,STOP.Youcannotclaimthe $46,997($52,427marriedfilingjointly)withthreeor EIC. more qualifying children; $43,756($49,86marriedfilingjointly)withtwo qualifying children; $38,5($43,94marriedfilingjointly)withone qualifying child; or $4,590($20,020marriedfilingjointly)withnoqualifying children? Doyou(andyourspouse,iffilingjointly)haveasocial If YES,gotoStep3. 2 security number (SSN) that allows you to work? If NO,STOP.Youcannotclaimthe Note: Answer no if the taxpayer s social security card EIC. hasa NOTVALIDFOREMPLOYMENT imprint,andif the cardholder obtained the SSN to get a federally funded benefit,suchasmedicaid. 3 Isyourfilingstatusmarriedfilingseparately? If YES,STOP.Youcannotclaimthe EIC. If NO,gotoStep4. 4 Areyou(oryourspouse,ifmarried)anonresidentalien? If YES and you are either unmarried Note: Answer no ifthetaxpayerismarriedfilingjointly, ormarriedbutnotfilingajointreturn, and one spouse is a citizen or resident alien and the other STOP. You cannot claim the EIC. is a nonresident alien. If NO,gotoStep5. 5 Areyou(oryourspouse,iffilingjointly)filingForm2555or If YES,STOP.Youcannotclaimthe Form2555-EZ(ForeignEarnedIncome)toexcludeincome EIC. earned in a foreign country? If NO,gotoStep6. Isyourinvestmentincome(interest,taxexemptinterest, If YES,STOP.Youcannotclaimthe dividends&capitalgains)morethan$3,350? EIC. 6 If NO,gotoStep7. 7 Areyou(oryourspouse,iffilingjointly)thequalifyingchild If YES,STOP.Youcannotclaimthe of another taxpayer? EIC. If NO,gototheinterviewtipsfor EIC With a Qualifying Child or EIC Without a Qualifying Child. Note: If your Social Security card says VALID FOR WORK ONLY WITH DHS AUTHORIZATION, you can use your Social Security number to claim EITC if you otherwise qualify. I-3
interview tips 2 EIC with a Qualifying Child Probe/Action: Ask the taxpayer: Does your qualifying child have an SSN that allows him or her to work? Note: Answer NO only if the child s social security card says NOT VALID FOR EMPLOYMENT and his or her SSN was obtained to get a federally funded benefit. Is the child your son, daughter, child, adopted child, or eligible foster child, brother, sister, half brother, half sister, brother, sister, or a descendant of any of them? If YES, go to Step 2. If NO, STOP. You cannot claim the EIC on the basis of this qualifying child. If YES, go to Step 3. If NO, STOP. This child is not your qualifying child. Go to interview tips for EIC without a Qualifying Child. 3 4 Was the child any of the following at the end of the tax year: Under age 9 and younger than the taxpayer (or spouse, if filing jointly) Under age 24 and a full-time student and younger than the taxpayer (or spouse, if filing jointly), or Any age and permanently and totally disabled? Did the child file a joint return for the year? Note: Answer NO if the child and his or her spouse filed a joint return only as a claim for a refund. If YES, go to Step 4. If NO, STOP. This child is not your qualifying child. Go to interview tips for EIC without a Qualifying Child. If NO, go to Step 5. If YES, STOP. This child is not your qualifying child (failed the joint return test). Go to interview tips for EIC without a Qualifying Child. 5 6 Did the child live with you in the United States for more than half (83 days for 204) of the tax year? Note: Active duty military personnel stationed outside the United States are considered to live in the United States for this purpose. Is the child a qualifying child of another person? Note: There may be a case when a qualifying child cannot be claimed by anyone. Example: The only parent that the child lives with does not work nor files a tax return and another adult cannot meet the general eligibility rules. In this example no one qualifies to claim this child as a qualifying child for EIC. If YES, go to Step 6. If NO, STOP. This child is not your qualifying child. Go to interview tips for EIC without a Qualifying Child. If YES, explain to the taxpayer what happens when more than one person claims the EIC using the same child (Qualifying Child of More than One Person rule). If the taxpayer chooses to claim the credit with this child, compute the EIC using the appropriate EIC worksheets. If NO, compute the EIC using the appropriate EIC worksheet. If your child was married at the end of the year, he or she does not meet the joint return test unless you can claim the child s exemption or you cannot claim the child s exemption because you gave that right to the child s other parent. I-4
interview tips EIC Without a Qualifying Child Probe/Action: Ask the taxpayer: Can you (or your spouse, if filing jointly) be claimed as a dependent by another person? If NO, go to Step 2. If YES, STOP. You cannot claim the EIC. 2 3 Were you (or your spouse, if filing jointly) at least 25 but under age 65 on December 3 of the tax year? Taxpayers born on January st are considered to be of age as of December 3st. Taxpayers reaching the age of 65 on January st are still considered 64 as of December 3st. Did you (and your spouse, if filing jointly) live in the United States for more than half (at least 83 days) of the tax year? More than 83 days in a leap year. If NO, STOP. You cannot claim the EIC. If YES, go to Step 3. If NO, STOP. You cannot claim the EIC. If YES, compute EIC using the appropriate EIC worksheet. Note: If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 204, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules for people who do not have a qualifying child. TIP Qualifying Child of More than One Person If the child meets the conditions to be the qualifying child of more than one person, only one person can claim the child. The following rules apply: If only one of the persons is the child s parent, the child is treated as the qualifying child of the parent. If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time in 204. If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for 204. If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for 204. If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for 204, but only if that person s AGI is higher than the highest AGI of any of the child s parents who can claim the child. I-5
Schedule EIC Caution: Only answer 4a or 4b. DO NOT ANSWER BOTH QUESTIONS. I-6
Schedule EIC Worksheet COMPLETE ONLY THOSE QUESTIONS IN RED Hint: TaxWise will automatically compute EIC with and without non-taxable combat pay and choose the method that is best for the taxpayer. Hint: Enter income earned while an inmate in a penal institution (including work release) on the TaxWise EIC Worksheet in the section titled Figure your Credit. TaxWise will subtract this amount from other earned income. Caution: Read this question carefully Note : If the taxpayer has had their EIC previously denied, you will need to complete Form 8862. Note 2: As with any form, read and answer the questions carefully. Make sure there are no red check marks on Schedule EIC or the Schedule EIC worksheet. I-7