Earned Income Tax Credit (EITC) and Family Credits

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low to moderate income working individuals and families. If you qualify, the credit could be a maximum amount of up to $5,657 for 2009. This means you could pay less federal tax, pay no tax or even get a refund. That’s money you can use to make a difference in your life.

The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. You must file a tax return to claim the credit and if you have children, they must meet the relationship, age and residency requirements.

Who is eligible for the EITC?

If you were employed for at least part of 2009, you may be eligible for the EITC based on these general requirements:

• You earned less than $13,440 ($18,440 if married filing jointly)  and did not have any qualifying children
• You earned less than $35,463 ($40,463 if married filing jointly) and have one qualifying child (See Who is a Qualifying Child Below)
• You earned less than $40,295, ($45,295 if married filing jointly) and have two qualifying children
• You earned less than $43,279, ($48,279 if married filing jointly) and have three or more qualifying children

Note: For the 2009 and 2010 tax years, there is a temporary increase in the amount of the credit for those with three or more qualifying children. This is a result of the American Recovery and Reinvestment Tax Act of 2009.

In addition you must meet a few basic rules:

• You must have a valid Social Security Number.
• You must have earned income from employment or from self-employment.
• Your filing status cannot be married, filing separately.
• You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
• You cannot be a qualifying child of another person.
• If you do not have a qualifying child, you must: be age 25 but under 65 at the end of the year, live in the United States for more than half the year, and not qualify as a dependent of another person.
• You cannot file Form 2555 or 2555-EZ (related to foreign earn income).
• Your investment income must be $3,100 or less.

Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. The amount of your nontaxable combat pay should be shown on your Form W-2 in box 12 with code Q.

Who is a Qualifying Child?

Your child is a qualifying child if he or she meets three tests that involve relationship, age and residency. The tests are explained below.

Relationship
To be your qualifying child, a child must be your:

• Son, daughter, stepchild, eligible foster child, or a descendant of any of them, or
• Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew).

Definitions to clarify the relationship test

• Adopted child: An adopted child is always treated as your own child. The term "adopted child" includes a child who was lawfully placed with you for legal adoption.
• Eligible Foster Child: A person is your eligible foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other court order.

Age
Your child must be:

• Under age 19 at the end of 2009,
• A full-time student under age 24 at the end of 2009, or
• Permanently and totally disabled at any time during 2009, regardless of age.
• New! To be a qualifying child for tax year 2009 the child must be younger than you.

Residency
Your child must have lived with you in the United States for more than half of 2008.

Special Circumstances
There are special rules to follow if more than one person qualifies for the credit using the same qualifying child or if your qualifying child is married. Publication 596, Earned Income Tax Credit, explains these special circumstances.
 

How can I get EITC in my paycheck in 2010?

You may prefer to get some of next year’s EITC throughout the year, rather than wait and get EITC after you file your tax return. To get advance payments of the EITC, complete Form W-5, Earned Income Credit Advance Payment Certificate and give the lower part of the form to your employer. Keep the top part for your records.

To qualify for Advance EITC you must:

• Receive wages
• Expect to qualify for the EITC
• Expect to have at least one qualifying child  
• Complete Form W-5, Earned Income Credit Advance Payment Certificate, and give it to your employer

For more information about the EITC and to use the EITC Assistant interactive tool to find out if you are eligible for the credit, go to www.IRS.gov/eitc. You may also access IRS Publication 596, Earned Income Credit.

Other tax credits you may be eligible for

• Child and Dependent Care Credit – If you paid someone to care for a child or a dependent so you could work, you may be able to reduce your federal income tax by claiming the credit for child and dependent care expenses on your tax return. See Publication 503, Child and Dependent Care Expenses.
• Child Tax Credit – This credit is for people who have a qualifying child. It can be claimed in addition to the credit for child and dependent care expenses. See Publication 972, Child Tax Credit.
• Education Credits – Education tax credits can help offset the costs of education. The Hope Credit and the Lifetime Learning Credit are education credits you can subtract in full from your federal income tax, not just deduct from your taxable income. For an overview of these credits, see Tax Benefits for Education in this toolkit. For more detailed information, see Publication 970, Tax Benefits for Education.