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Category: Tax Deductions and Credits Tags: , , , ,
by January 30, 2012

What is the Earned Income Tax Credit?

The earned income tax credit (EITC) provides additional funds to people who, despite working, receive low to moderate incomes. Easy enough, right? Unfortunately, there are countless rules and exceptions to those rules in determining eligibility for the EITC. Let’s get right to simplifying it for you.

Earned Income Tax Credit

Earned Income Tax Credit

Earned Income Tax Credit Eligibility

To qualify for the EITC, you must have a Social Security Number, work for pay, and earn less than a certain dollar threshold (amounts detailed later).  There are many other requirements including USA citizenship/resident alien status and limitations on investment and foreign income, but those are typically not issues for people otherwise qualified for the EITC.

Work for Pay

Unemployment income doesn’t help you qualify for the EITC. Neither does bank interest.  In order to receive any money via the EITC, you must work. You can have a traditional job as an employee or you can be your own boss and earn money from self-employment.  But one way or another, you’ve got to earn some money in order to qualify for the EITC.

Income Limits

For the 2011 tax year (the tax return you’re about to file), your earned income (what you receive due to your work), and your adjusted gross income (AGI, the sum total of all of your earnings less certain deductions) must be less than:

  • $43,998 ($49,078 married filing jointly) with three or more qualifying children
  • $40,964 ($46,044 married filing jointly) with two qualifying children
  • $36,052 ($41,132 married filing jointly) with one qualifying child
  • $13,660 ($18,740 married filing jointly) with no qualifying children

Qualifying Children

As you can see above, the relevant income limits are much more generous if you take care of at least one qualifying child.  Your child qualifies if he or she meets all of the following conditions:

  • Has a valid Social Security Number
  • Is your child (natural, adopted or foster), grandchild, sibling, step-sibling, half-sibling, niece, or nephew
  • Younger than you and younger than 19, unless a student (in which case your child must be less than 24), or totally and permanently disabled (in which case there is no age limit)
  • Lives with you in the United States for more than half of the year
  • The child doesn’t file a joint tax return.

For more information or to help determine your eligibility for the Earned Income Tax Credit, use EITC Finder app by Intuit.

Claiming the EITC

The EITC Finder  app and TurboTax can help you claim the Earned Income Tax Credit.  Note that unlike many other tax credits, the EITC is a refundable tax credit. This means that the EIC can not only eliminate any income tax liability you might otherwise face but, to the extent your tax credit exceeds your liability, you can pocket the difference. It is for this reason that the EITC is one of the most important tax considerations.

Make sure to review the table above and use the EITC Finder app– if your income is below the relevant threshold, .  It just might mean an extra $2,000 or more in your pocket. Few other tax maneuvers can earn you that kind of cash!

Michael Rubin

Author of the bestseller Beyond Paycheck to Paycheck, and the upcoming The Savings Solution, Michael B. Rubin is a Certified Public Accountant (CPA) and a CERTIFIED FINANCIAL PLANNER professional. In addition to his experience providing sophisticated financial advice to affluent clients, Michael has been a key source of information for over a decade to countless others. He speaks passionately about and provides guidance on virtually all personal financial planning topics. Michael has appeared in various media, including radio and TV stations across the country, plus national media such as CNN Money.com, latimes.com, The Wall Street Journal, SmartMoney.com, Chicago Tribune, Financial Advisor Magazine, and Investment News. Prior to founding Total Candor LLC, Michael worked in the personal financial services practices of two of the former "Big Six" accounting firms. Subsequently working for several years as a new venture executive for Toys "R" Us, Inc., he made sure that he never actually grew up. He holds an undergraduate business degree from the Ross School of Business at the University of Michigan and an MBA from the Kellogg School of Management at Northwestern University. Michael lives in New Hampshire with his wife and children.

Comments (14) Leave your comment

  1. Hello,

    I am a independent contractor, claiming Head of Household with two children(ages 6 and 9).My income per 1099 was approximately 23,000. Is TurboTax.com software correct in stating that I do not qualify for EIC?

    Reply

  2. I made 1600.00 as a handyman this year and no taxes were taken out. I also have a 6 year old child who lives with me. Should I even file?

    Reply

  3. My husband pays me spousal support & child support. We live in separate homes but have not filed for divorce. Do I have to claim that on taxes if I do not work otherwise??

    Reply

  4. I am filing singly for 2011. My income was 27,000 for the year. A little over 26,000 for S.S.D.I the rest from a part-time job. Do I qualify for EIC? and if not what form would I use?
    THX Stan

    Reply

  5. I am self employed so have schedules C and SE. Turbotax is combining my net and gross income to get my ‘earned’ income. Why? Something must me entered wrong somewhere but I can’t figure it out. Also, there is an ‘error’ on the 1040 section of Alimony, asking for the recipients social security #. I told turbo tax software that we had no alimony (coming in or going out), I even went back to that section “updated” it to say we didn’t, but it is still flagging it as an error. How do I fix this?
    Wendi

    Reply

    • Hi Wendi,
      Sorry you are having difficulty. In TurboTax online:
      1. Go to the Home Tab
      2. Scroll down to “Delete a Form”
      3. Click “Delete a Form”
      4. All forms associated with your tax return will come up
      5. Delete the schedule C and SE and re-enter the information

      Regarding the alimony section, did you ever have alimony? It may be transferring from your previous tax return.
      1. Click the “wages and income” section
      2. Click “explore on my own”
      3. On the “My 2011 Income Summary” screen scroll down/click “Alimony”
      under “Less Common Income”
      4. On the “Alimony or Spousal Support Received” screen make sure nothing appears.
      If you are still having difficulty please contact our free tax experts so they can speak with you live.
      Thank you,
      Lisa Greene-Lewis

      Reply

    • Hi Jack,
      Yes in order to claim the EITC you have to file a tax return.
      Thank you,
      Lisa Greene-Lewis

      Reply

      • Forgot to add. You don’t need to worry about the form. TurboTax will guide you through an interview and fill out the tax form for you.
        Thank you,
        Lisa Greene-Lewis

  8. i was a independent contractor for the year -2011 can i get a great a erned income credit. also what is the per mileage this year.

    Reply

    • Hi Robert,
      As an independent contractor you can still get earned income credit as long as your income meets the appropriate income limits.
      The mileage rates are as follows: January 1 – June 30, 2011
      Business 51
      Charitable 14
      Medical and moving 19

      July 1 – December 31, 2011

      Business 55.5
      Charitable 14
      Medical and moving 23.5
      Thank you for using TurboTax

      Reply

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