The Earned Income Tax Credit (EITC)

Roxanna Guinan
by Roxanna Guinan, Contributor

 

We all know people who have lost a job or seen their business suffer during this protracted economic downturn. Job losses from the recession are estimated at nearly 8 million, resulting in an average nationwide unemployment rate at nearly 9.5%.

The Earned Income Tax Credit (EITC) was created to help low-income workers, self-employed individuals, and their families. The Earned Income Tax Credit is being utilized by more taxpayers than ever—some for the first time--as a means to offset their loss of (or reduction in) income. The Earned Income Tax Credit can result in either a tax credit to offset income tax due or a tax refund. The Economic Stimulus Package increased funds for the Earned Income Tax Credit so more families could qualify for tax relief in 2009 and 2010.

The new qualifications and income limits are explained below.

2010 EITC Eligibility Requirements “Earned income” is from work performed for someone who pays you, or from work you perform in a business you own.

Taxable earned income includes the following:

  • Wages, salaries and tips
  • Union strike benefits
  • Long-term disability benefits received prior to minimum retirement age
  • Net earnings from self-employment

The IRS has strict guidelines for determining who can claim the Earned Income Tax Credit on their tax return.

The following requirements must be met in order qualify for this tax credit:

  • You must have a valid social security number
  • Your earned income must be from employment or self-employment
  • Your investment income must be $3,100 or less for the year
  • Your filing status cannot be “married filing separately”
  • You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
  • You cannot be a qualifying child of another person.
  • You cannot file Form 2555 or Form 2555-EZ (related to foreign earned income)

If you do not have a qualifying child, you can still claim the Earned Income Tax Credit if all the following apply: • You are at least 25 years old, and under 65 years old at the end of the year • You lived in the United States for more than half the year • You do not qualify as a dependent of another person 2010 EITC Income Requirements To qualify for the Earned Income Tax Credit, you must meet the income thresholds below.

Your “earned income” and “adjusted gross income” (AGI) must each be less than the following:

  • 0 qualifying children ― $13,460 if single ($18,470 if married filing jointly)
  • 1 qualifying child ― $35,535 if single ($40,545 if married filing jointly)
  • 2 qualifying children ― $40,363 if single ($45,373 if married filing jointly)
  • 3+ qualifying children ― $43,352 if single ($48,362 if married filing jointly)

The maximum amounts that can be claimed for the Earned Income Tax Credit (for tax year 2010) are as follows:

  • 0 qualifying children ― $457
  • 1 qualifying child ― $3,050
  • 2 qualifying children ― $5,036
  • 3 or more qualifying children ― $5,666

The American Recovery and Reinvestment Act (ARRA) provides a temporary increase in the EITC and expands the tax credit for workers with 3 or more qualifying children. These changes are temporary and apply to tax years 2009 and 2010. For more information on whether a child qualifies you for the Earned Income Tax Credit, see Chapter 2 of IRS Publication 596 (Earned Income Credit, Rules If You Have a Qualifying Child).