Do You Qualify for the Earned Income Credit? The IRS is Making it Easier to Get the EIC

Each year billions of dollars are distributed to millions of low-income working families in America, to help them make ends meet. This is called a refundable credit, which means you don't have to first pay in taxes to qualify.

To qualify for the Earned Income Credit you must:

Have a valid Social Security Number.

You must have earned income either from a job or self-employment. Earned income includes wages, salaries, tips, union strike benefits, net earnings from self-employment, long-term disability benefits received before you reached minimum retirement age, jury duty pay. Income that does NOT qualify includes interest and dividends, welfare benefits, veterans benefits, Social Security payments, workers compensation, alimony, child support, unemployment compensation, taxable scholarships, housing allowance, and money earned for work performed while an inmate at
a penal institution.

You must file your taxes as single, or head of household, or married filing jointly, or widowed, but you cannot qualify if you are married filing separately.

You must be a U.S. citizen or resident alien for the entire year, or a nonresident alien married to a U.S. citizen or resident alien and if you are married, you must file a joint return.

If you are a person who is claimed by another taxpayer so that taxpayer can get the EIC, you cannot qualify to get it yourself. For example: Suppose you are the 18 year-old mother of a child who qualifies you to get the EIC. You both live with your mother, and your mother claims an EIC because she helps support you. You cannot get the EIC.

If you do not have a qualifying child:

You must not be the dependent of another person

You must be age 25, but less than 65 at the end of the year

You must live in the United States for more than half the year, and

In 2006 your income must fall under these limits to qualify for the EIC:

With two or more qualifying children - $36,348 (for a married couple filing jointly $38,348)

With one qualifying child - $32,001 (for a married couple filing jointly $34,001)

With no qualifying children - $12,120 (for a married couple filing jointly $14,120)

How much is the credit for 2006?

Two children, maximum of $4,536

One child, maximum of $2,747

No children, maximum of $412

Miscellaneous requirements:

Investment income. You may not have investment income over $2,800 for the year.

Disability income. If you retired on disability and are receiving payments from your employer's disability retirement plan, this is considered earned income until you reach minimum retirement age (the earliest age at which you could receive a pension or annuity if you weren't disabled).

Advanced Earned Income Tax Credit: If you qualify for the Earned Income Credit, you can receive it in advance through the Advanced Earned Income Tax Credit. You must contact your employer and fill out paperwork to do so. It is received in advance by adding a portion of it to your paycheck.

Common mistakes that can affect your ability to get the EIC

Filing single or head of household when you are married

Using the wrong Social Security Number

Incorrectly reporting your income

Claiming a child who is not qualifying

Who is a qualifying child? Three tests must be met:

The age test-

Child must be under age 19 on the last day of the year.

Or be under age 24 and a full-time student at the end of the year.

Or be permanently and totally disabled at the end of the year, regardless of age.

The relationship test-

Must be your son or daughter, stepchild, descendant of your child, such as your grandchild, adopted child (a child lawfully placed with you for adoption) an eligible foster child (a child placed with you by a lawful authority or order of the court), your brother or sister, half-sibling, step-sibling, or the descendant of your sibling.

The residency test-

The child must have lived with you for more than half of the year in 2006.