Table of Contents
You must meet one more rule to claim the EIC.
You need to know the amount of your earned income to see if you meet the rule in this chapter. You also need to know that amount to figure your EIC.
Your earned income must be less than:
$46,997 ($52,427 for married filing jointly) if you have three or more qualifying children,
$43,756 ($49,186 for married filing jointly) if you have two qualifying children,
$38,511 ($43,941 for married filing jointly) if you have one qualifying child, or
$14,590 ($20,020 for married filing jointly) if you do not have a qualifying child.
Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Earned income is explained in detail in Rule 7 in chapter 1.
Scholarship or fellowship grants not reported on a Form W-2. A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit.
Inmate's income. Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. This includes amounts received for work performed while in a work release program or while in a halfway house. If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ).
Pension or annuity from deferred compensation plans. A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). This amount may be reported in box 11 of your Form W-2. If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity.
Medicaid waiver payments. Medicaid waiver payments you exclude from income are not earned income for the earned income credit. These are payments received for providing nonmedical support services under a plan of care to someone in your home. If these payments were incorrectly reported to you in box 1 of Form(s) W-2 and you included them in the total on Form 1040, line 7, because you could not get a corrected Form W-2, report them as described in the instructions for Form 1040, line 21. For more information about these payments, see Pub. 525.
$6,450 if you have no children.
$9,700 if you have one child.
$13,650 if you have two or more children.
Example 1—election increases the EIC.
George and Janice are married and will file a joint return. They have one qualifying child. George was in the military and earned $15,000 ($5,000 taxable wages + $10,000 nontaxable combat pay). Janice worked part of the year and earned $2,000. Their taxable earned income and AGI are $7,000. George and Janice qualify for the EIC and fill out the EIC Worksheet and Schedule EIC.
When they complete the EIC worksheet without adding the nontaxable combat pay to their earned income, they find their credit to be $2,389. When they complete the EIC worksheet with the nontaxable combat pay added to their earned income, they find their credit to be $3,305. Because making the election will increase their EIC, they elect to add the nontaxable combat pay to their earned income for the EIC. They enter $3,305 on line 42a of their Form 1040A and enter the amount of their nontaxable combat pay on line 42b.
Example 2—election does not increase the EIC.
The facts are the same as Example 1 except George had nontaxable combat pay of $22,000. When George and Janice add their nontaxable combat pay to their earned income, they find their credit to be $2,384. Because the credit they can get if they do not add the nontaxable combat pay to their earned income is $2,389, they decide not to make the election. They enter $2,389 on line 42a of their Form 1040A.
The IRS will figure your EIC for you if you follow the instructions in Figure B.
To figure the EIC yourself, use the EIC worksheet in the instructions for the form you are using (Form 1040, Form 1040A, or Form 1040EZ). If you have a qualifying child, complete Schedule EIC (discussed later in this chapter) and attach it to your tax return.
If you want the IRS to figure your EIC for you, see IRS Will Figure the EIC for You, earlier.
If you file Form 1040, you will need to decide whether to use EIC Worksheet A or EIC Worksheet B to figure the amount of your EIC. This section explains how to use these worksheets and how to report the EIC on your return.
You must complete Schedule EIC and attach it to your tax return if you have a qualifying child and are claiming the EIC. Schedule EIC provides the IRS with information about your qualifying children, including their names, ages, SSNs, relationship to you, and the amount of time they lived with you during the year. An example of a filled-in Schedule EIC is shown in chapter 6.
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