Are Lower Income Taxpayers Taking Full Advantage Of The Earned Income Credit?

The earned income credit (EIC) is a major tax credit that is specifically designed for lower income working families and individuals. The amount of the credit varies depending on your level of income and how many dependents you support. You can claim this credit with or without qualifying children, but greater tax credit is given to those who have qualifying children. This credit can be valued at over $6,000 if you have three or more qualifying children. The earned income credit is a refundable credit, which means that you will receive a tax refund whether or not you had any taxable income.

As the name implies, the earned income credit is provided as an incentive for individuals to work. Consequently, to qualify for this credit, you must have some form of earned income during the year. Earned income includes wages you get from working, and income you earn from self-employment.

For your qualifying child to make you eligible to claim the credit, he or she must meet all of the following four tests:

(a) Relationship test: The child must be related to you by birth, marriage, adoption, or foster arrangement.
(b) Age test: The child must be: (a) under 19 at the end of the year, (b) under 24 at the end of the year, and a full time student, or (c) permanently and totally disabled at any time during the tax year regardless of age.
(c) Joint return test: The child must not have filed a joint return with their spouse, unless filing only for a tax refund, and would have no tax liability if separate returns were filed.
(d) Residency test: The qualifying child must live with you in the United States for more than half of the year (12 months for a foster child).

You can claim the earned income credit even if you do not have a qualifying child, but the following rules apply:

• You must be over 25 years old, but less than 65 years old at the end of the tax year. (If filing MFJ, only one spouse needs to meet the age test.)
• You (and your spouse, if filing a joint return) cannot be a dependent on another person’s tax return.
• You cannot be a qualifying child of another person.
• You must have lived in the United States for more than half of the year.

Because of the potential magnitude of this credit, the IRS pays a lot of attention to taxpayers who claim the earned income credit. This is because of the high incidence of fraudulent returns taxpayers have prepared, to benefit from this credit. Consequently, if you wish to claim this credit, you must comply with the following requirements:

• Answer the earned income credit eligibility questions.
• Complete the Earned Income Credit Worksheet.
• If you have qualifying children, you must complete Schedule EIC, Earned Income Credit, and attach it to your tax return.

Because of the nature and potential value of this credit, the IRS may ask you to provide documents to prove that you are entitled to the earned income credit. These may include birth certificates, school records, medical records, etc., so it would be wise to have these handy.

The primary objective of this article is to empower taxpayers to learn to do their own taxes. For detailed information on how to claim all your tax credits, grab yourself a copy of “Doing Your Own Taxes is as Easy as 1, 2, 3” ($6.98) on

Connect with Milton Boothe

Milton G Boothe is an IRS Enrolled Agent with over twenty years of tax and financial accounting experience, including several years at PricewaterhouseCoopers. He is also a British certified Chartered Accountant. He is currently employed in private tax practices where he helps people resolve their tax problems, minimize their taxes, and routinely represents the interests of taxpayers before the Internal Revenue Service. As an Enrolled Agent (EA) Boothe is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the IRS for audits, collections, and appeals.
Milton G Boothe is also the author of several tax publications, wherein he encourages people to empower themselves by learning to do their own taxes.

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.