Earned Income Credit (EIC)

What is the EIC? The EIC is a refundable Federal income tax credit for low-income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. Caution: EIC has become one of the most abused tax credits and constitutes a majority of the fraud cases; therefore, stringent tax laws pertaining to the credit have been instituted.


Important Changes for 2003

Form 8836. If you received Form 8836, Qualifying Children Residency Statement, you have been selected to participate in the EIC certification pilot program. File the form with the IRS, following the form instructions, to show that you and your child met the residency test described in Rule 8 in this chapter. If you did not receive the form, you do not need to get it or file it. You
have to file Form 8836 only if it was mailed to you.

Earned income amount is more. The amount you can earn and still get the credit has increased for 2003. The amount you earn must be less than:

• $29,666 ($30,666 for married filing jointly) with one qualifying child,

• $33,692 ($34,692 for married filing jointly) with more than one qualifying child, or

• $11,230 ($12,230 for married filing jointly) if you do not have a qualifying child.

Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased to $2,600. SeeRule 6.


The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $34,692. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.

How do you get the earned income credit?

To claim the EIC, you must:

  1. Qualify by meeting certain rules, and

  2. File a tax return, even if you:
    a) Do not owe any tax,
    b) Did not earn enough money to file a return, or
    c) Did not have income taxes withheld from your pay.

When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Or, if you prefer, you can let the IRS figure the credit for you.


If Improper Claim Made in Prior Year

If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return if you wish to claim the EIC.

However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. For example, if your arithmetic is incorrect, the IRS can correct it. If you do not provide a correct social security number, the IRS can deny the EIC. These kinds of errors are called math or clerical errors.

If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. If your error was due to fraud, then you cannot claim the EIC for the next 10 years.



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