How do I figure my EIC or Earned Income Credit?
The earned income tax credit can be a great benefit for workers with lower incomes. This tax break returns to qualified individuals a portion of the taxes they paid. It can even produce a tax refund for eligible filers who had no tax liability.
Many people think the credit is available only to parents. It's not. But the amount the Internal Revenue Service will give back is greater for eligible low-wage taxpayers with children.
On 2012 returns, the maximum credit can be as much as $5,891 for workers supporting three or more children. A worker with one child can get up to $3,169 with the credit. And $475 is available to a childless eligible employee. The amount is adjusted slightly for inflation each year.
To qualify for the credit, a taxpayer must earn money, but not too much.
A single filer's adjusted gross income must be less than $13,950 if he or she has no children; $36,950 with one child; $41,950 with two children; and $45,100 with three or more children.
For Married couples filing jointly your adjusted gross income must be less than $19,200 if he or she has no children; $42,150 with one child; $47,200 with two children; and $50,270 with three or more children.
If your AGI (Adjusted Gross Income) is equal to or more than the applicable limit listed above, you cannot claim the EIC.
All wage or salary income, as well as any self-employment earnings, count toward the eligibility limits. So do investment earnings. In fact, if you make more than $3,150 in investment income, you cannot file for the earned income credit.
Married couples who file separate returns are not eligible for the earned income credit. If you are married but your spouse did not live in your home for the last six months of the year, you may be able to file as head of household and take the credit.
And if you have no children, you must meet three additional tests before you can claim it:
1. You must be at least 25-years-old, but under age 65 at the end of the tax year for which you are making the claim.
2. You cannot be the dependent of another taxpayer.
3. You must live in the United States for more than half of the tax year.
Requirements children must meet
All taxpayers claiming credits based on the children they are raising must take into account each child's age (younger than 19 unless the child is a full-time student or permanently disabled), the child's relationship to the taxpayer and where the child lived during the tax year.
The relationship test is met if the child is your son, daughter, adopted child, stepchild or grandchild. Your brother, sister, stepbrother or stepsister (or the child or grandchild of these relatives) may also be considered if you care for this person as you would your own child.
A foster child relationship also may qualify for the credit as long as:
1. The child was placed with you by an authorized placement agency. This includes a state or local government agency or court, as well as a tax-exempt organization licensed by a state.
2. You cared for the foster child as if the youngster was your own child.
As for residency, the IRS generally demands that the child live with the taxpayer in the United States for more than half of the year.