Working taxpayers with lower incomes may qualify for a special credit called the Earned Income Tax Credit. It helps ensure those who can work, do, by offering an incentive to low income taxpayers. Next to Medicaid, this credit comes in second as far as the amount of help it provides to taxpayers at lower income levels. The credit takes into account income amounts, filing status, and dependents and is refundable in certain situations.

The Earned Income Tax Credit is assessed based on you modified adjusted gross income, earned income, and the number of qualifying children listed on your tax return. In order to be eligible for the credit, you must have income paid to you through an employer or through self-employment.

Who is a Qualifying Child?

The EITC factors the amount of qualifying children you have, although those without children may still meet the requirements to claim a portion of the credit. A qualifying child must meet the following conditions:

  • Be eligible for the dependency exemption
  • Under 19 years old unless they are a full time student under age 24. (special rules apply to those who are permanently disabled)
  • Live in the taxpayers home for greater than 50% of the year
  • If married by end of the tax year, must still be eligible to be claimed as a dependent
  • Is a resident or citizen of the U.S.

Income and Filing Status Requirements

The EITC uses your earned income in determining your credit amount. Earned income includes wages, salaries, tips, commissions, jury duty pay, certain disability pensions, self-employment earnings, union strike benefits, and specific military wages. Tax-free combat pay for military personnel can be included as earned income for purposes of the tax credit. Generally, earned income doesn’t account for money that isn’t subject to taxation, such as salary deferrals, fringe benefits, or 401k contributions. If you exceed the income threshold, you may be eligible for a reduced credit, or the credit may be depleted entirely.

In order to claim the credit as a married couple, you are required to file a joint return. The only exception to this is if your spouse didn’t live in the same house as you for the last half of the year. IF this occurs, the spouse who paid for the expenses of a household which was occupied by a qualifying child is the one who is eligible to claim the Earned Income Tax Credit.