Feature Articles:
Taxes
Earned Income Credit
Brenda Procter, M.S., State Specialist & Instructor, Personal Financial Planning, University of Missouri Extension
The Earned Income Credit (EIC) is a Federal income-tax
credit for working families with low to moderate
incomes. The EIC, sometimes referred to as the Earned
Income Tax Credit, is available to married and single
parents or caregivers. Individuals and families without
children may also receive the EIC if their incomes are
low enough.
SECTION I: The Earned Income Credit (EIC)
SECTION II: Who Is Eligible?
SECTION III: How do I get the EIC?
SECTION IV: The Application Process
SECTION I: The Earned Income Credit
(EIC)
Q. What is the Earned Income Credit (EIC)?
A. The EIC is a Federal tax credit for working families,
with or without children, who meet certain income
guidelines. Eligible families either pay less Federal
income tax or get a larger tax refund.
Q. How much money can I get if I qualify for the EIC?
A. The following numbers are for tax year 2008:
- Workers who earned less than $33,995 (or $36,995 for married workers) and were raising one child in their homes may be eligible for an EIC of up to $2,917.
- Workers who earned less than $38,646 (or $41,646 for married workers), and were raising two or more children in their homes, may be eligible for a credit of up to $4,824.
- Workers at least age 25 and under 65, who earned less than $12,880 (or $15,880 for married workers) and were not raising children in their homes may be eligible for a credit of up to $438.
Q. How would I actually get my benefit?
A. You will only get the benefit if you file a tax
return and a schedule EIC. The amount of your EIC
benefit is determined by your income and family size.
See the EIC chart in your tax-return instructions.
You can get your benefit in one of three ways:
- As a higher income tax refund from the IRS at the end of the tax year,
- As monthly additions to your paycheck (only up to 60% of the credit), or
- As a smaller amount of income tax you must pay at the end of the year.
Q. What do I count as income to figure my benefit?
A. Any of the following count as earned income under the
EIC guidelines:
- Salary
- Wages and tips
- Self-employment
- Certain military pay and allowances
- Certain strike benefits
- Disability long-term benefits, if taxable
- 401(K)-type contributions by your employer
- Cafeteria-plan contributions by your employer
Q. Who can get the EIC?
A. Two separate groups of people can get the EIC.
1) You are in the first group of eligible taxpayers if:
- There is a qualifying child living in your home,
- You or your spouse worked part-time or full-time in 2008,
- The family's adjusted gross income was less
than:
- $33,995 (or $36,995 for married workers) for one-child households; or
- $38,646 (or $41,646 for married workers) for households with more than one child, and
- You do not have certain disqualifying investment income greater than $2,950.
Qualifying children include: sons, daughters,
stepchildren, grandchildren, and adopted children, as
long as they lived with the worker in the United States
for more than half the year. Brothers, sisters,
stepbrothers, or stepsisters--as well as descendants of
such relatives--can be claimed as foster children if
they lived with the taxpayer more than half the year and
were cared for as members of the family. Other children
may qualify as foster children, but only if they are
placed with the worker by an authorized placement agency.
A qualifying child must be:
- Less than 19 years old,
- Or a full time student under 24,
- Or totally and permanently disabled (no matter the age).
2) If a child is not in your household, you might still
be eligible for the EIC. To qualify for this group of
eligible taxpayers:
- You must be more than 24 years old and less than 65 years old,
- You must have lived in the United States for more than half the year,
- You cannot be the dependent of another taxpayer,
- Your family must have had an adjusted gross income less than $12,880 (or $15,880 for married workers),
- You or your spouse must have worked part-time or full-time in 2008, and
- You do not have certain disqualifying investment income greater than $2,950.
Q. Does it matter whether my spouse and I file joint
or separate income tax returns?
A. Yes, it does matter! If you are married and you and
your spouse file separate returns, you will not get the
EIC. Both of you must file a joint return to get it.
Q. I am single. Can I still get the EIC?
A. Yes, if you meet the guidelines outlined above.
Q. I already get food stamps and other benefits. Can
I still get the EIC?
A. Yes, your other benefits will in no way affect your
eligibility for the EIC.
Q. Will the EIC affect other benefits?
A. Generally, no. Under federal rules, the EIC
(including advance payments) is not counted as income
for Medicaid, Food Stamps, SSI, or federally assisted
housing programs. The EIC must be spent by the end of
the month after the month in which it is received or it
can count as a resource in determining eligibility for
Medicaid, SSI, or federally assisted housing programs.
The EIC can count as a resource in determining
eligibility for Food Stamps if it is not spent within 12
months of receiving it. Often, if the recipient has few
or no other resources, the amount of the EIC is not
enough to cause that recipient to exceed the resource
limit for the benefits programs mentioned.
The welfare legislation enacted in August 1996 replaced the AFDC program with a new block grant program called Temporary Assistance for Needy Families (TANF). Under the block grant, each state can set its own rules for how the EIC will be treated in determining eligibility for cash assistance, but so far no state has counted EIC as income. However, states could consider changing such rules for the future.
Q. Can I get the Child Tax Credit and the EIC?
A. Yes. Claiming the Child Tax Credit does not reduce
benefits from the EIC.
SECTION III: How do I get the EIC?
Q. Who do I contact about getting the EIC?
A. Because it is a tax credit, you must work through the
Internal Revenue Service to get it.
Q. What forms do I need to complete?
A. If you raised children in 2008, you must file either
Form 1040 or 1040A and must fill out and attach Schedule
EIC. Workers with children cannot get the EIC if they
file Form 1040EZ or fail to attach Schedule EIC. Married
Workers must file a joint return to get the EIC.
If you are not raising children, you can file any tax
form--including the 1040EZ. Write "EIC" or the dollar
amount of your credit on the Earned Income Credit Line
on the tax form. You do not file Schedule EIC. Be sure
to provide a correct name and Social Security number for
every person listed on the tax return and Schedule EIC
to prevent delays in your refund.
Q. Can I still receive the EIC if I don't owe any
income tax and do not have to file a tax return?
A. Yes, you can, but only if you actually file a 1040 or
1040A tax return and a Schedule EIC. The government will
send you a check in the amount of the EIC benefit.
Filers with no children can use Form 1040EZ.
Q. Is there any way to get benefits for past years
when I did not know about the EIC?
A. You can apply for EIC benefits for each or all of the
last three years, if you qualified, by filing an amended
tax return (1040X) for each year in question. Call
1-800-829-3676 (1-800-TAX-FORM) for ordering forms.
Q. Is there a way to receive the EIC each month
rather than in one yearly payment?
A. Yes, this is the "advance-payment" option. You have
to have at least one child living in your household to
take the advance-payment option. Your family can get up
to 60% of the benefit throughout the year in your
paycheck and the rest in a check from the IRS after you
file a tax return. In fact, you must file a tax return
at the end of the year if you get advance payments.
Q. How do I get EIC advance payments?
A. Fill out a W-5 Form, called the Earned Income Credit
Advance Payment Certificate. Give the bottom portion to
your employer.
Q. Where can I get the W-5 form?
A. Your employer may have it. If not, contact your local
IRS office or call toll-free 1-800-829-3676.
Q. What can I do if my employer has never heard of
the EIC advance payment?
A. You could suggest your employer look up the necessary
information in the IRS Employer's Tax Guide, Circular E.
Under federal law, most eligible workers who file a W-5
must be given EIC advance payments.
Q. The year is nearly over. Isn't it too late to file
a W-5 form?
A. It's never too late. You can file any time during the
year. Of course, there's always next year.
Q. Once I've filed a W-5, do I ever need to file
again?
A. Yes, you must file a new one each year to continue
receiving the EIC in your paycheck.
Q. Can I get my entire year's EIC benefit through the
advance payment option?
A. No, you can receive up to 60% of your total EIC
benefit as long as you have at least one child living in
your home. This can be more than $130 per month.
Q. What happens if my EIC advance payments are higher
than my total EIC benefits for the year?
A. It is unlikely that your advance payments will be too
high. Generally, this would happen only to people who
get married during the year and add a spouse's income, and people who receive a large increase in salary. If
you are in either group, you should stop advance
payments by filing a new W-5 marked "NO."
Q. What if my advance payments are too low?
A. Taking advance payments doesn't reduce the total
benefit received. You'll get any additional EIC benefits
in a check mailed after you have filed a tax return and
Schedule EIC for the year. Advance payments and the
year-end check will add up to the total benefit you
would otherwise have gotten all at once at the year's
end if you hadn't taken advance payments.
SECTION IV: The Application Process
Q. How do I apply for the EIC?
A. You must fill out two IRS forms:
- Form 1040A or 1040 (filers without children may be able to use the 1040EZ)
- Schedule EIC
You can get the forms at the public library or post office. Or download forms from the IRS site at http://www.irs.gov/formspubs/index.html.
Q. Can I get free help in filling out these forms?
A. Yes, through a program called Volunteer Income Tax
Assistance (VITA). VITA clinics are open from January
through April.
To find out where the closest one is, call the IRS at
1-800-829-1040, or if you live in Missouri you can search
online for a free income tax preparation site from
http://extension.missouri.edu/hes/taxed/vitasites.htm.
Many Missouri communities do not have VITA sites
available. If no VITA site is available in your
community, you may also get help at an IRS office or an
Elderly Tax Assistance Site.
Q. Are there any other sources of free help
available?
A. Workers with children can file either Form 1040 or
1040A and fill out and attach Schedule EIC. You can
write in "EIC" on the Earned Income Credit line of your
tax form. IRS will then calculate the amount of the EIC,
as long as the completed Schedule EIC is attached.
Families can also get free help by calling
1-800-829-1040 during regular business hours. People who
are deaf or hard of hearing and have TTY/TT/TDD
equipment can call 1-800-829-4059.
Q. What will happen if I try to fill out a tax return
after not doing one in a long time?
A. Ask the IRS. You do not have to give your name.
Q. Where can I find more information?
A. For more EIC information, visit the IRS site at
http://www.irs.gov/pub/irs-pdf/n797.pdf
 |
Site Administrator: |
|
|
|
Last update: Tuesday, May 05, 2009
