Who Can Claim the Earned Income Credit (EIC)?

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Started ‎08-15-2016 by
Modified ‎08-15-2016 by

The two most asked questions we see on The Community about earned income credit are "Can I claim the credit?" and "Why can't I claim the credit?". A lot goes into answering this question, so this article will hopefully make figuring out the EIC credit easier and less confusing.

 

Step #1: Let's start with the basic qualifications.  There are some basic requirements that you have to meet in order to qualify.  You must: 

  • Have a valid U.S. social security number (including dependents and spouse) before the due date of your tax return
  • Have earned income
  • Not file your tax return using the "married filing separately" filing status
  • Must be a US citizen or resident alien the whole year.

 

Step #2: If you meet all of the basic qualifications then you can move on to the income qualifications.  There are two basic income requirements.  You must: 

  • Not file Form 2555 for the foreign earned income exclusion
  • Not have more than $3,400 worth of investment income.

 

Step #3: Provided that you're qualified so far, the next step is to determine which scenario you qualify under.  There are two possibilities.

 

Possibility #1: You qualify based on your adjusted gross income & earned income levels.

In order to qualify based on income, your adjusted gross income and your earned income must be within certain limits and are different for each filing status.  You must also meet three additional requirements including that: 

  • You must live in the United States for more than half of the year 
  • You must be age 25 or older but under age 65
  • You cannot be eligible to be claimed as a dependent or as a qualifying child on anyone else's tax return.

The limits for income-based EIC claims for 2016 are as follows:

  • If you are single, head of household, or a qualifying widow/widower then each of your adjusted gross income & earned income must be less than $14,880.
  • If you are married & filing jointly then each of your adjusted gross income & your earned income must be less than $20,430.

 

Possibility #2: You have a qualifying child and your income is below the phaseout level.

If you have a dependent child who qualifies you to claim the EIC, your income must be under the phaseout threshold for your specific scenario.  There are different thresholds based on your filing status and on how many qualifying children you have.

 

The phaseout thresholds for 2016 for those are single, head of household, or a qualifying widow/widower are:

  • $39,296 with 1 dependent
  • $44,686 with 2 dependents
  • $47,955 with 3 dependents

The phaseout thresholds for 2016 for those who are married & filing jointly are:

  • $44,846 with 1 dependent
  • $50,198 with 2 dependents
  • $53,505 with 3 dependents

 

Step #4: Finally, there are special rules for certain taxpayers. Here are the most common exceptions:

  • Members of the military have the option to include their non-taxable combat pay in their earned income for EIC purposes.  This is most beneficial when it would result in a larger refund due to a larger EIC.
  • Those with a totally and permanently disabled relative have a qualifying child for EIC if they meet the other requirements no matter how old their disabled relative is.
  • Those who are disabled and receive disability income may be able to include that income in their earned income for EIC purposes.  Some types of disability income are considered earned income.  For instance, disability retirement benefits under your employer’s disability retirement plan are considered earned income until you reach the minimum age when you could receive distributions from a retirement account, currently age 59 1/2.
  • Members of the clergy must include their housing allowance in their earned income for EIC purposes because it is included in their income for the self-employment tax.  This income does not have to be included however if you have an approved Form 4361 or Form 4029.
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