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 Overview

The Earned Income Credit is a refundable tax credit for low-income workers. If you qualify for an EIC, you can get a tax refund even if you did not pay any taxes. In 2007, the EIC could be as high as $2,853 if you had 1 qualifying child, as high as $4,716 if you had more than 1 qualifying child, and as high as $428 if you did not have a qualifying child. 

To get the EIC, you must file a tax return.  If you did not claim the EIC in prior years, you can generally file tax returns or amended tax returns for the last 3 years to get your EIC tax refunds.

The rules for the EIC are complex.  However, it is very likely that you can get the EIC if:

•  you had earned income below certain levels;
•  your child or other qualified child lived with you for more than 6 months of the tax year;
•  you don't have to file Married Filing Separately

Read the Rules below to find out if you can get the EIC.  Rules 1 to 8 apply to all taxpayers.  Rules 9 to 11 apply to taxpayers with a qualifying child. Rules 12 to 15 apply to taxpayers without a qualifying child.

Rules for Everyone

Rules 1 to 8 apply to all taxpayers.

Rule 1:  You Must Have a Valid Social Security Number

You (your spouse, if filing a joint return) and your qualifying child must have valid Social Security Numbers.

If you don't have a Social Security Number by the deadline for your tax return, you have 2 choices:

• Request an automatic 6 month extension to file your return. You can do this by filing a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
• File the return on time without claiming the EIC. When you get the Social Security Number, file an Amended return, Form 1040X, claiming the EIC

Rule 2:   Your Filing Status Cannot Be "Married Filing Separately"

To get the EIC, you must be able to file as single, married filing jointly or head of household. You cannot get the EIC if you file (or are required to file) as married filing separately.

If you are married on December 31 of the tax year, you usually must file a joint return to get the EIC.

However, if your spouse did not live with you for the last 6 months of the tax year, you may be able to file as head of household and claim the EIC.

Rule 3:   You Must Be a U.S. Citizen or Resident Alien All Year

You cannot claim the EIC if you are a non-resident alien for any part of the year, unless:

• You are married to a U.S. citizen or resident alien; and
• You choose to be treated as resident for the entire tax year by filing a joint return.

Rule 4:   You Cannot File Form 2555 or Form 2555-EZ

You cannot claim the EIC if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.

Rule 5:   Your Investment Income Must Be $2,900 or Less

If your investment income is more than $2,900 in 2007, you cannot claim the EIC.

This investment income limit usually goes up by a few dollars every year.

Rule 6:   You Must Have Earned Income

To get the EIC, you must have "earned income" from a job or self-employment.  Earned income includes:

• Wages, salaries, tips, and other taxable employee pay
• Net earnings from self-employment
• Gross income received as a statutory employee

If you are filing a joint return, earned income by any spouse can qualify for the EIC. 

If you retired on disability, money you receive from your employer's disability retirement plan is considered "earned income" until you reach minimum retirement age.

Rule 7:   Your Earned Income Must Be Less Than:

For the 2007 tax year:

• $37,783 ($39,783 for married filing jointly) if you have more than 1 qualifying child
• $33,241 ($35,241 for married filing jointly) if you have qualifying child
• $12,590 ($14,590 for married filing jointly) if you do not have a qualifying child

These limits go up somewhat every year.  Thus, the limits will be higher in 2006 and lower for 2005 and 2004.

Rule 8:   Your Adjusted Gross Income Must Also Be Less Than:

For the 2007 tax year:

§         $33, 241 ($35, 241 for married filing jointly) if you have 1 qualifying child

§         $37,783 ($39,783 for married filing jointly) if you have more than 1 qualifying child

§         $12, 590 ($14, 590 for married filing jointly) if you do not have a qualifying child

Rules If You Have a Qualifying Child

If you have a qualifying child, you must also meet Rules 9 to 11 to get the EIC.

Rule 9:    Your Child Must Meet the Relationship, Residency and Age Tests

For you to get the EIC, your child must meet 3 tests:

• Relationship
• Age
• Residency

Relationship Test

Your child must either be your child, stepchild, adopted child, grandchild or "eligible foster child"

Your brother, sister, half brother, half sister, stepbrother or stepsister (or the child or grandchild of these persons) may also be your "qualifying child" for the EIC if you cared for the person as "your own child."

For the EIC, an "eligible foster child" means the child is placed with your by an authorized placement agency, judgment, or decree.  This includes courts, local and state government agencies or nonprofits licensed by state.  You also have to care for a foster child as you would your own child.

A child does not have to be your dependent to be a "qualifying child" unless he or she is married.

If your child was married on December 31, he or she does not meet the relationship test unless you can claim a dependency exemption for the child, or the reason that you cannot claim the child's exemption is that you gave that right to the child's other parent.

Age Test

Your child must be:

• Under age 19 at the end of the tax year; or
• A full-time student under age 24 at the end of the tax year; or
• Permanently and totally disabled at any time during the tax year, regardless of age

Residency Test

Your child must have lived with you in the United States for more than half of the tax year. (Note: different tests applied for some children before 2002).

Your home can be any place where you regularly live.  Count time that the child was away from home due to special circumstances as time lived at home. Special circumstances can include:

• Illness
• School attendance
• Detention in a juvenile jail
• Business
• Vacation
• Military service

A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the kidnapping happened.  The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. The last year this treatment can apply is the earlier of:

§         The year there is a determination that the child is deceased; or

§         The year the child would have reached the age of 18

A child who was born or died in the tax year is treated as having lived with you for all of the tax year if your home was the child's home the entire time he or she was alive.

Rule 10:   Your Qualifying Child Cannot Be Used By Another Person to Claim the EIC

Only 1 person can use the child to claim an EIC. If you and someone else have the same qualifying child, you and that person can decide who will claim the EIC.  But if you and the other person cannot agree, tie-breaker rules apply.

Under the tie-breaker rules, the following persons will get the EIC:

• A parent wins over a non-parent
• If both persons are parents, the parent with whom the child lived the most during the year wins
• If the child lived with both parents for the same time, the parent with the highest Adjusted Gross Income (AGI) wins
• If neither is a parent, the person with the highest AGI wins.

Rule 11:    You Cannot Be a Qualifying Child of Another Person

If you (or your spouse if filing a joint return) are a qualifying child of another person, you cannot claim the EIC.  This is true even if the person for whom you are a qualifying child does not or cannot claim the EIC.

You are a qualifying child of another person (your parent, guardian, foster parent, etc.) if all of the following statements are true:

1.   You are that person's child, adopted child, stepchild, grandchild or eligible foster child.  Or if you are that person's brother, sister, stepbrother, stepsister (or the child or grandchild of such a person) for whom that person cares for as his or her own child, and

2.   At the end of the year, you were:

• Under the age 19, or
• Under age 24 and a full-time student, or
• Any age if you were permanently and totally disabled at any time during the year

3.    You lived with that person in the United States for more than half of the year.

Rules if You Do Not Have a Qualifying Child

If you do not have a qualifying child, you must also meet Rules 12 to 15 to get the EIC Credit:

Rule 12:    You Must Be at Least Age 25 but Under Age 65

You must be at least age 25 but under age 65 at the end of the year.  If you are married and filing a joint return, either you or your spouse must meet this test.

Rule 13:    You Cannot Be the Dependent of Another Person

If someone else can claim you (or your spouse if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the EIC.

See IRS Publication 501 available from www.irs.gov for more information on whether someone can claim you as his dependent.

Rule 14:    You Cannot Be a Qualifying Child of Another Person

See information under Rule 11 above.

Rule 15:   You Must Have Lived in the United States More Than Half of the Year

Your home can be any location where you regularly live. You do not need a traditional home. If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule.