Schedule EIC - Earned Income Credit

           The Earned Income Credit is an important and valuable benefit to many lower income taxpayers in the United States.  There has been and continues to be some fraud related to the earned income credit.  In an attempt to reduce the incidence of fraud, and to verify certain information from those claiming the credit, taxpayers must complete Schedule EIC if claiming the earned income credit on their tax return.  The schedule contains important information regarding the qualifying children related to the credit.

            Schedule EIC is very simple and straightforward.  It is merely used to provide information on the one or two qualifying children you are using to claim the earned income credit.  At the top of the schedule there is a Caution section which contains warnings to taxpayers regarding the penalties and punishment that will be incurred if the earned income credit is taken when the taxpayer is not eligible. 

             For each qualifying child, you need to enter the name, Social Security number, year of birth, the child’s relationship to you, and the number of months that the child lived in your home during the year.  If the child is not under age 19, there are two questions that must be answered regarding their student status or disability.

            Schedule EIC is not used to actually compute the amount of the earned income credit you will be able to claim.  Schedule EIC is only for the purpose of verifying information on the qualifying child or children.

             The taxpayer is required to file Schedule EIC with their Form 1040 or Form 1040A if they are eligible for and are claiming the earned income credit.  Be sure that the child’s name and Social Security number matches the name and number on his or her Social Security card.

             Since the purpose of the Schedule EIC is to provide information on the qualifying child or children, it is crucial to understand who your qualifying child is.  For the earned income credit, your qualifying child would be your child, stepchild, foster child, sibling, step-sibling, or the children of any of these.  To qualify, the child needs to be younger than age nineteen or younger than age twenty-four if a full-time student, unless the child is disabled.  The child must also have resided with you for over half the year.  Further requirements need to be met if the child is married, or if the child could be the qualifying child of someone else.

             There is an informative note on the back of the Schedule EIC notifying taxpayers who are eligible for the earned income credit about advance earned income credit payments.  By taking advantage of advance payments, the taxpayer does not have to wait until they file their return for the next year to collect the earned income credit.  If interested, the taxpayer would need to complete Form W-5 and submit it to his or her employer. 

             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.