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What Is the Earned Income Tax Credit?

The Earned Income Tax Credit is recorded on a line of a person's 1040 Form.
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  • Written By: Christine Hudson
  • Edited By: C. Wilborn
  • Last Modified Date: 25 September 2014
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The Earned Income Tax Credit (EITC) is the name of an income tax credit issued to a specific group of taxpayers by the United States government. EITC was created in an attempt to reduce the tax liability of low-wage workers. In some cases, the EITC can also supply a taxpayer with a federal refund. Certain eligibility requirements must be met before a person is able to qualify for the Earned Income Tax Credit.

Only certain people are eligible for this credit. United States citizens, resident aliens who have been living as such for the entire tax year, or nonresident aliens married to a citizen and filing jointly can claim the Earned Income Tax Credit. Applicants need a valid social security number and must have earned income, either through employment or being self-employed, during the tax year.

The taxpayer does not need to have a qualifying dependent to receive the EITC. Dependents do increase the possible EITC amount, however. Those without qualifying children must be between the ages of 25 and 65, must not be listed as another taxpayer's dependent, and must have lived in the US for more than six months.

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A qualifying child is one who lives with the taxpayer for over half the year and is under the age of 19 at the end of the tax year. Permanently disabled children or full-time students under the age of 24 who live at home are also considered qualifying children. Legally adopted or foster children, step children, or any other child depending on the taxpayer's income are also eligible. Those who are not sure their dependent will qualify should visit the Internal Revenue Services (IRS) website before filing.

An individual can also determine the amount of credit due to him or her at the IRS website. The amount of credit given depends on a number of factors, including earned income, adjustable gross income, and investment income. Whether or not an individual has one or more qualifying children will also determine how much credit is due. The IRS website provides an EITC worksheet and table for easy calculating.

To claim the Earned Income Tax Credit, an individual can use the Earned Income Credit table and fill out the EIC worksheet in the Form 1040, 1040A, or 1040EZ instruction books. Earned income includes any taxable wages an individual receives. Tips, union strike benefits, and self-employment wages are all included as taxable earned income. Some income which is not eligible include gambling winnings, gifts, and some forms of investment returns.

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