Tax Tips

The EIC is designed to help low-income workers.

The EIC is designed to help low-income workers continue working by reducing their income tax liability. As long as your income is below specified amounts and you meet certain other tests, you may qualify for this credit. Plus, the EIC is a refundable credit, meaning that once your tax gets down to $0, the rest of the tax credit is refunded to you.

• To qualify for the Earned Income Credit (EIC), your earned income and adjusted gross income must be below certain thresholds.
• A qualifying child must pass the relationship, age and residency tests.
• If you have at least 1 qualifying child, you can receive Advance EIC payments in each paycheck.

Credit amounts increased for taxpayers with children.
In 2011 there is an increased EIC for taxpayers with one or more qualifying children. The EIC reduces the tax you owe and gives you a refund even if you do not owe any tax. In 2011 the maximum credit is:

• $5,751 for three or more qualifying children
• $5,112 for two qualifying children
• $3,094 for one qualifying child
• $464 if there are no qualifying children
• $518 on your Indiana Tax Return
   

EIC Requirements

In 2009 the definition of a qualifying child was revised. These provisions generally affect brothers, sisters, and grandparents.

The tests to determine whether you qualify for the EIC depend on whether you have 1 or more qualifying children. However, everyone must meet 8 tests:

1. You must file a tax return, and you can't be Married Filing Separately.
2. You must have a valid social security number.
3. You must be a U.S. citizen or resident alien for the entire year.
4. You must have earned income (income for which you performed services).
5. Investment income can't be more than $3,100 in 2011.
6. You can't file Form 2555 or 2555-EZ to exclude foreign source income.
7. Your earned income and adjusted gross income in 2011 must be less than $13,660 if you have no qualifying children ($18,740 Married Filing Jointly), $36,052 if you have 1 qualifying child ($41,132 Married Filing Jointly), $40,964 if you have 2 qualifying children ($46,044 Married Filing Jointly), or $43,998 if you have 3 or more qualifying children ($49,078 Married Filing Jointly).
8. You (or your spouse) can't be the qualifying child of another person.

Qualifying Children

A qualifying child must meet these 3 tests: relationship, age and residency.

• Relationship: The child must be your son or daughter, grandchild, adopted child, stepchild or eligible foster child. (To be an eligible foster child, the child must have been placed with you by a qualified placement agency, or by judgment, decree, or other order of any court of competent jurisdiction.) The child does not have to be eligible to be your dependent unless the child is married. (A married child must be eligible to be your dependent unless you're divorced or separated and have given up the right to claim the child as a dependent to the other parent.)
• Age: The child must be younger than 19 at the end of the year unless the child is a full-time student or permanently and totally disabled. Full-time students for at least 5 months of the year must be younger than 24. Permanently and totally disabled individuals may be any age.
• Residency: The child must have lived with you in your U.S. home for more than 6 months of the year. (Members of the U.S. Armed Forces who are out of the country on extended active duty are considered to be living in the U.S.) Time away for temporary absences (for example, attending college) counts as time living with you. A child who was born or died during the year meets the residency test as long as he or she lived with you the entire time he or she was alive. Also, the child must have a social security number that is valid for employment in the U.S.

Claiming the EIC without a Qualifying Child

If you meet the requirements above, but don't have a child who meets the relationship, age and residency tests, you must meet all of the following conditions to claim the EIC:

1. You must be at least 25 and younger than 65 at the end of the year.
2. You don't qualify as a dependent of another person.
3. You must have lived in the U.S. for more than half the year.

Related IRS Publications: 596