Who Cannot Claim It
If you are a nonresident alien and file this way for tax purposes, you cannot claim the EIC. A dependent on someone else’s tax return cannot claim the credit for themselves. Persons using the married filing separately status cannot claim the credit.
A valid social security number is a requirement. Your investment income cannot be above a certain threshold. For 2010, the threshold was $3,100. And there are income requirements that you must not exceed.
If you are over sixty-five or under twenty-five, you may not claim the earned income credit. This is because it is not intended to supplement income for the elderly as other federal programs are specifically for this purpose. The youngsters in college are the other group that are being excluded. The EIC was also not meant as a supplement to the college student. Unfortunately, young people in their early twenties with kids to support were overlooked.
What It Is
To claim the credit, you must have earned income, for example, from a W-2 working at a job. Or if you have a business that made a profit that you materially participated in, you would have generated earned income. A single person or a married couple are both eligible if their income is in the correct range. The credit will be higher if you have qualifying dependent children. However, if you have eight qualifying dependent children, the credit may only be claimed for up to three children.
A credit is a reduction in tax liability. Some items reduce taxable income, which is the amount you are taxed on before tax is figured. With the EIC, your tax liability is calculated from your taxable income and then it is deducted.
Why Is It So Special
It is a refundable tax credit. So if you are eligible for tax liability is $400 and your EIC is $4,800, then you will receive a tax refund of $4,400. It may be similar to a raise to your wages. Some tax credits that are not refundable would only reduce your tax liability to zero and you would not have received a refund.
Earned Income Thresholds
The thresholds depend upon how many qualifying children, if any, you have. Basically, the more children you have that qualify (up to a maximum of three), the higher the income threshold. But if you even make $50,000 for a married filing joint return, you will not qualify.
The EIC is meant to supplement middle class working families. If the EIC is not something you can claim, find a deserving family and inform them about the EIC. You may help their family!
For more information, visit the Internal Revenue Service website. Publication 17 Individual Tax Return Help and Instructions to the Personal Form 1040 both have additional information.
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