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Accounting Information > Income Taxes > Earned Income Credit

Earned Income Credit

    The Earned Income Credit is a tax credit that was created to help lower income taxpayers.  The credit directly reduces your tax liability, and is even refundable.  This means that if the credit or other credits reduce your tax amount to zero, you are able to receive a refund for the excess amount related to the earned income credit.


    The largest earned income credit amounts are available to taxpayers with qualifying children, but an earned income credit is also available to taxpayers with no children.

    A taxpayer is eligible to claim the earned income credit if they meet several requirements.  You must have earned income, and your adjusted gross income must be under the specified amounts.  If you have a qualifying child, that child must have lived with you in your home in the United States for more than half the year.  You must file a joint return if you are married.  However, if you and your spouse did not live together for the last six months of the year, and you qualify as head of household, you may be able to claim the credit.  The taxpayer is required to file Schedule EIC with their Form 1040 or Form 1040A, with the child’s Social Security number included.  The taxpayer must not be the qualifying child of any other person.  You must report your Social Security number on your return, and your spouse’s Social Security number, if you are married.  

    A qualifying child includes your child, adopted child, stepchild, grandchild, brother, sister, step-brother, step-sister, half-brother, half-sister, or the descendants of any of those.  The child must be under nineteen years old, or under twenty-four years old if a full-time student, or be permanently and totally disabled.  To qualify, the child must also live with you for more than half the year.  

    If a child is a qualifying child for more than one person, special tie-breaking rules apply.  If both parents could claim the credit for the same child, and they are not filing jointly, the parent that the child lived with for a longer time during the year would be able to claim the child.  If the child lived with each parent for equal amounts of time, the parent with the larger adjusted gross income would be able to claim the child.  If a parent and one or more other people are eligible to claim the child, the parent is the one who is able to claim the child.  If none of the people eligible to claim the child are the child’s parent, the person with the largest adjusted gross income would be the one who can claim the child as a qualifying child for the earned income credit.

    If a taxpayer does not have a qualifying child they would still be able to claim the earned income credit if they meet certain requirements.  They must have earned income, and an adjusted gross income under the specified limits.  They must have lived in the United States for more than six months.  The taxpayer must be at least age 25, and not yet age 65.  If married and filing a joint return, at least one spouse must meet the age requirement.  If married, the taxpayer must file jointly unless the spouses did not live together for the last six months of the year, and the taxpayer would qualify as head of household.  The taxpayer cannot be the dependent of any other taxpayer, and this must be true for both spouses if married.  The taxpayer, and spouse, if married, cannot be the qualifying child of another taxpayer.  The taxpayer’s Social Security number, and that of the spouse if married, must be reported on the income tax return.
    If you are looking for a CPA or Accounting Firm to assist you with your income tax reporting, bookkeeping, financial planning, or general accounting needs, then you have come to the right place!  Try out the CPA Search feature on this website to find a qualified professional in your area.


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