How to Get the Earned Income Tax Credit

Transcription

1 How to Get the Earned Income Tax Credit Overview Advice on how to get the Earned Income Tax Credit. What is the Earned Income Credit? What is earned income? Does my child qualify? How do I qualify if I have no children? Income level chart How do I claim the Earned Income Credit? Getting free tax assistance What is the Earned Income Credit? The Earned Income Credit (EIC), also referred to as EITC, is a special tax benefit for parents and people who work full or part time. If you qualify for the EIC, you ll owe less in taxes and you may get cash back. But you must file a federal tax return to receive this benefit. You can file for the EIC when you file your taxes this year. You can also change your tax filing as far as three years back, using the correct forms. Depending on your income and the number of children living with you, your EIC can range from a few dollars to more than $6,000 per year. In most cases, you can get the EIC even if you receive welfare, food stamps, Medicaid, or a public housing rent subsidy during the year. Also, the EIC will not count as added income to lower any benefit you may continue to receive from such programs. Many legal immigrant workers, including green card holders, refugees, and others authorized to work in the U.S., can get the EIC. To get the EIC, you, your spouse, and any children you claim for the EIC must each have a valid Social Security number. What is earned income? Earned income is any money you earn working for a company or through selfemployment. Taxable earned income may include: - wages - salaries - tips - union strike benefits - long-term employer-paid disability payments - net earnings from self-employment Nontaxable earned income does not count as earned income, with the exception of combat pay. If you or your spouse is a member of the U.S. Armed Forces and served in a combat zone in the tax year for which you are filing, you can elect to include your combat pay in your earned income for EIC. (Your W-2 should show nontaxable combat pay in box 12 with code Q.) The inclusion of this pay may increase or decrease your EIC. Income that does not count in figuring earned income includes: - voluntary salary deferrals (e.g., 401(k)) - combat pay (unless you elect to include it)

2 2 How to Get the Earned Income Tax Credit - basic quarters and subsistence allowances from the U.S. military - value of meals and lodging provided by an employer - housing allowance or rental value of a parsonage for clergy - dependent care benefits - voluntary salary reductions (e.g., cafeteria benefits plan) - interest - dividends - Social Security - railroad retirement benefits - welfare benefits - pensions - annuities - veterans benefits - workers compensation benefits - alimony - child support - unemployment compensation - taxable scholarships and grants - variable housing allowance for the military - earnings for work performed as an inmate in prison Does my child qualify? A child must meet three tests to qualify you for the EIC: 1. Relationship. - The child must be your: son daughter grandchild stepson stepdaughter adopted child sister, brother, stepsister, stepbrother, or a descendant of such relative foster child (i.e., any other child placed with you by an authorized child placement or government agency. To be eligible, the child must have lived with you for more than half the year.)

3 3 How to Get the Earned Income Tax Credit 2. Residency. - The child must have lived with you for more than half the year. - Your home must be in one of the 50 states or the District of Columbia. - You may live in any kind of living arrangement, including a homeless shelter. 3. Age. - A child must have been under the age of 19 at the end of the tax year. - If the child is a full-time student (enrolled in a high school; college; or technical, trade, or mechanical school with a full-time course load), she may be up to age 24 at the end of the tax year. - Your child also qualifies if he is permanently and totally disabled during any part of the year, regardless of age. A child who is married and files a joint return may not be claimed by you unless he or she files the joint return only to claim a refund and was not otherwise required to file a return. In general, you must be able to claim an exemption for the child yourself. How do I qualify if I have no children? For tax year 2015, if you are not raising a child you can claim for the EIC, your earned income must be less than $14,820 ($20,330 if you are married). You must also meet these requirements: You cannot be the qualifying child or a dependent of another person. You (or your spouse) must be between the ages of 25 and 64 at the end of the tax year. You must live in the U.S. for more than half the year. Income level chart Based on your 2015 family income level and number of children, the following chart tells you which forms you ll need to complete and how much money you may get.

4 4 How to Get the Earned Income Tax Credit Family earnings in 2015 Children living with you in 2015 You must file these forms EIC you can receive less than $14,820* (or $20,330 for married workers filing jointly) did not have a qualifying child living with you and you are between 25 and 64 years old Form 1040, 1040A, or 1040EZ did not claim the EIC, file: up to $503 less than $39,131* (or $44,651 for married workers) had one qualifying child living with you. Form 1040 or 1040A Schedule EIC didn t claim the EIC, file: up to $3,359 Attach Schedule EIC less than $44,454* (or $49,974 for married workers) had two qualifying children living with you. Form 1040 or 1040A Schedule EIC didn t claim the EIC, file: up to $5,548 Attach Schedule EIC less than $ $47,747* (or $53,267 for married workers) had three or more qualifying children living with you Form 1040 or 1040A Schedule EIC didn t claim the EIC, file: up to $6,242 Attach Schedule EIC * Your earned income (usually wages) and the adjusted gross income you show on your tax return (wages plus bank interest, unemployment compensation, etc.) must each be below this amount. See the Internal Revenue Service (IRS) instructions for completing the appropriate tax return: Form 1040, Form 1040A, or Form 1040EZ. If you have investment income exceeding $3,400 in 2015, you will not be eligible for the EIC.

5 5 How to Get the Earned Income Tax Credit How do I claim the Earned Income Credit? If you have not filed your tax return yet or if you want to change your return to get the credit, follow the directions below that apply to you: If you didn t file a return this year, you can calculate the EIC amount yourself or seek tax assistance (see below), or you can ask the IRS to calculate the amount of your credit. 1. If you are claiming a qualifying child, you must use Form 1040 or Form 1040A (not Form 1040EZ) to file your tax return. You must also complete Schedule EIC (Earned Income Credit Qualifying Child Information) and attach it to your tax return. (You can use any one of these forms if you don t have a qualifying child.) - For Form 1040, fill out Schedule EIC if you have a qualifying child. Complete the Earned Income Credit Worksheet included in the instructions for Form Enter the amount of your EIC on line 66a. (Or, to have the IRS figure your credit, simply print EIC next to line 66a.) If you want to include combat pay in your earned income (include it if it raises your EIC amount), enter it on line 66b. - For Form 1040A, fill out Schedule EIC if you have a qualifying child. Complete the Earned Income Credit Worksheet included in the instructions for Form 1040A. Enter the amount of your EIC on the line labeled Earned Income Credit (EIC). (Or, to have the IRS figure your credit, simply print EIC next to that line.) If you want to include combat pay in your earned income, enter it on the line immediately following the Earned Income Credit (EIC) line.. - For Form 1040EZ, complete the Earned Income Credit Worksheet included in the instructions for Form 1040EZ. Enter the amount of your EIC on the line labeled Earned Income Credit (EIC). Or, to have the IRS figure your credit, simply print EIC next to that line. If you want to include combat pay in your earned income, enter it on the line immediately following the Earned Income Credit (EIC) line. You can only use the 1040EZ if you do not have a qualifying child. 2. If you have already filed your tax form, you can change it. You must use Form 1040X to amend your return; and if you had a qualifying child, you must complete Schedule EIC as well. You can amend your returns for the prior 3 years to get the EIC for those years if you would have qualified. Get the instruction book for the type of form (1040, 1040A, or 1040EZ) and year you filed to determine whether you are eligible and the amount of credit for which you are eligible. Enter the amount of the EIC on line 13 of Form 1040X, and enter the amounts indicated from your earlier return to figure out how much additional refund you are entitled to. If you have a qualifying child in that year, attach the Schedule EIC to the completed Form 1040X. Notes: - The advance EIC payment option was eliminated by Congress beginning in 2011.

6 6 How to Get the Earned Income Tax Credit - A taxpayer can be denied the EIC for a period of 10 years if the government determines that a claim for the credit was based on fraud. A two-year period will apply if the taxpayer files for the credit with reckless or intentional disregard of the rules and regulations. Honest errors or miscalculations are not subject to these penalties. Getting free tax assistance Visit the IRS website at and search for Earned Income Credit or Earned Income Tax Credit to find applicable forms, publications, and other resources. The website s EITC Assistant tool can help you determine your eligibility and estimate the amount of your EIC. You can also call 800-TAX-FORM ( ) to have forms and publications mailed to you. To locate a free tax-preparation site near you call , or visit To get answers to your tax questions, call IRS at 800-TAX-1040 ( ). Developed and updated with assistance from the Center on Budget & Policy Priorities, Washington, D.C. Reviewed October 2015 by Vicky Youmans, MS, CEAP, AFC, CHC. Ms. Youmans is an accredited financial counselor with a master s degree in marriage and family therapy. She is a financial consultant with Ceridian Corporation. Ceridian HCM, Inc. All rights reserved. 1115