Earned Income Tax Credit

Tax Credit Means More Money for Low-Income Workers

The Earned Income Tax Credit is intended to help taxpayers who work but earn only modest incomes by reducing their tax bill.  The credit can apply to both individuals and families and caps out at very specific income levels based on the number of dependents the taxpayer claims.  In many instances, this credit can generate a tax refund larger than what you paid in withholding taxes or give you a refund even if there was no tax due.

How Do I Qualify for the Earned Income Tax Credit?

You will qualify for the Earned Income Tax Credit by virtue of your filing status and level of income.  Your credit will increase according to the number of qualifying children you have at the time you file your tax return.  You must have earned income during the year to qualify for the credit.

There are certain requirements to be eligible for the credit.  For the 2009 tax year your earned income and adjusted gross income (AGI) must each be less than:

To take the Earned Income Tax Credit, you must also have a valid Social Security Number and be a U.S. citizen or resident alien for the entire year.  You cannot take the credit if you file as Married, Filing Separately or you or your spouse are a qualifying child of another person.

If you have no qualifying children, you and your spouse must be between the ages of 25 and 64 and have lived in the U.S. for more than half the year.

How Much Will I Get for the Earned Income Tax Credit?

The maximum amount you can receive from the Earned Income Tax Credit changes each year.  The American Recovery and Reinvestment Act has provided a temporary increase in the credit and expands the credit for workers with three or more qualifying children. These changes are temporary and apply to the 2009 and 2010 tax years only. For tax year 2009, the maximum Earned Income Credit is:

A qualifying child is one that is related to you by birth, marriage, adoption or foster arrangement; is 18 years or younger at the end of the tax year (or 23 years or younger and a full-time student), and; has lived with you for more than six months during the tax year.  The child must also have a Social Security Number, Individual Tax Identification Number or Adoption Tax Identification Number to be a qualifying child for the Earned Income Tax Credit.

How Do I Get My Earned Income Tax Credit?

To get your credit, you will need to file your taxes, meet the income limitations and use the Earned Income Tax Credit Worksheet with any version of Form 1040.  The easiest way to do this is to use an online tax preparation site, like www.efiletaxreturns.com.  The site will automatically calculate whether you qualify for the credit and ensure you have the necessary information to claim it.

You can also request that your employer advance you part of the credit with your paycheck in increments during the year instead of waiting until you file your taxes.  This is called Advance Earned Income Tax Credit.  To take advantage, you will need to fill out IRS Form W-5 and give it to your employer.  You will still need to file for the credit on your taxes and account for any advance payments you receive.

Just remember, if you receive Advance Earned Income Credit and it turns out you don't qualify when you file your taxes you will be required to pay back the advance.  The easiest way to see if you qualify is to use the Earned Income Tax Credit Assistant on the IRS web site.