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Schedule EIC is our next stop in the long voyage through the alphabetized schedules for tax Form 1040.
Among the most popular credits available in the US tax code, EIC (earned income credit), or EITC (earned income tax credit), is a benefit for working people with low to moderate income.
EITC is a refundable tax credit, which means that it can be subtracted from taxes owed, but can also be refunded to the taxpayer even if taxes are not owed.
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Ever since it was first enacted in 1975, its popularity and impact has led to bi- partisan political support and expansion a number of times since it was created.
It is also worth mentioning that twenty-nine states plus the District of Columbia and Puerto Rico have enacted their own version of the federal Earned Income Tax Credit to help working families earning low wages meet basic needs.
The EITC can be worth as much as $6,431 for the 2018 tax year and $6,557 for the 2019 tax year. However, the credit amount varies significantly depending on tax filing status, number of qualifying children, and income earned. It is phased in and then phased out at certain income thresholds.
To take this credit, you must follow the steps outlined in the Instructions for Form 1040, Line 17a, complete the worksheet that applies to you or let the IRS figure the credit for you. If you have a qualifying child, you have to complete and attach Schedule EIC.
Families with children receive a much larger credit than workers without qualifying children; childless workers can receive a maximum credit of only $519. Moreover, the credit for childless workers phases out at much lower incomes, and childless workers must be at least 25 and not older than 64 to qualify for a subsidy (restrictions that do not apply to workers with children). As a result of these tighter rules, 97 percent of benefits from the credit go to families with children. |
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Basically, Schedule EIC is used to give the IRS information about your qualifying child (children) after you check that you qualify to take the credit and have a qualifying child.
You qualify for EITC if:
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- You have earned income and adjusted gross income within certain limits; AND
- You meet certain basic rules; AND
- You either:
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Meet the rules for those without a qualifying child; OR |
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Have a child that meets all the qualifying child rules for you, or your spouse if you file a joint return.
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You, your spouse and any qualifying child you list on your tax return must each have a SS number that is valid for employment and was issued before the due date of your return (including extensions).
You can be any filing status except “married filing separately”.
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Your income earned for tax year 2018 must meet the following conditions: |
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- Your tax year investment income must be $3,500 or less for the year.
- Must not file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion. (In other words, you must have lived in the U.S. for more than half of the year.)
- Your total earned income must be at least $1.
- Both your earned income and adjusted gross income (AGI) must be no more than the figures in the following table.
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Filing Status
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No child
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One child
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Two
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Three and more
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Single, Head of Household, or Surviving Spouse
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$15,270
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$40,320
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$45,802
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$49,194
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Married Filing Jointly
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$20,950
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$46,010
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$51,492
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$54,884
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Each child you claim must pass the relationship, age, residency and joint return tests to be your qualifying child. You may also be able to take the additional child tax credit if your child was your dependent and under age 17 at the end of 2018.
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If you do not have a qualifying child and you and your spouse (if filing a joint return) meet the basic EITC rules for everyone, you qualify for EITC if:
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- You resided in the United States for more than half of the year; AND
- You cannot be claimed as a dependent or qualifying child on anyone else's return; AND
- You must have been at least 25 but under 65 years old at the end of the tax year.
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| The EITC maximum credit amounts for 2018 are: |
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- $6,431 with three or more qualifying children;
- $5,716 with two qualifying children;
- $3,461 with one qualifying child;
- $519 with no qualifying children.
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You can use the EITC Assistant on the IRS website to find out your filing status, if your child is a qualifying child, if you are eligible, and to estimate the amount of the credit you may get.
Special EITC rules apply for members of the military, ministers, members of the clergy, those receiving disability benefits and those impacted by disasters.
Members of the military on extended active duty outside the Unites States are considered to live in the United States for tax purposes.
You do not have to report your nontaxable pay you receive as a member of the Armed Forces as earned income for EITC. Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). The amount of your nontaxable combat pay is on your Form W-2, in box 12, with code Q.
Nonetheless, you and your spouse can each choose to have your nontaxable combat pay included in your earned income for EITC. Including it as earned income may decrease the amount of tax you owe and may mean a larger refund. Calculate your taxes with the combat pay as earned income and without to find out what's best for you.
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Some disability retirement benefits qualify as earned income to claim EITC. Also, you may claim a relative of any age who is totally and permanently disabled and fits all other eligibility requirements.
If you take the EITC even though you are not eligible and it is determined that your error is due to reckless or intentional disregard of the EIC rules, you will not be allowed to take the credit for 2 years even if you are otherwise eligible to do so.
If you fraudulently take the EIC, you will not be allowed to take the credit for10 years. You may also have to pay penalties. |
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To promote the EITC, the IRS initiated a campaign, which started 11 years ago, as a nationwide effort to alert millions of low- and moderate-income workers who may be missing out on this significant tax credit. There is also an IRS brochure dedicated to the EITC awareness.
During 2018, 25 million workers and families received $63 billion in earned income tax credits, according to the IRS. The average credit amount was about $2,488.
To get this credit, first of all you need to file your federal taxes. That's true even if you earn less than the 2018 standard deduction of $12,000 for single filers and $24,000 for those married filing jointly.
You should keep in mind that, if you qualify for the EITC, you likely also qualify to file your taxes for free through the Free File Alliance, so there's no reason not to file, especially if it can get you a refund.
The Free File Alliance is a nonprofit coalition of industry-leading tax software companies partnered with the IRS to help you prepare and e-file your federal tax return for free.
The IRS stipulates that filers must have an adjusted gross income of $66,000 or less for tax year 2018, but participating companies have their own requirements and restrictions. The maximum income changes every year.
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There are form options available to those who have earned over $66,000, but these forms are essentially an electronic version of existing paper forms.
You may not be comfortable with taxes or don’t understand your financial situation fully enough to use these forms. In this case, it is worth investing a small amount in getting help from a tax professional to make sure you take advantage of all the credits you may be entitled to. |
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