The earned income credit, or EIC, is a refundable credit for workers who meet certain requirements and file a tax return. Persons with or without a qualifying child may claim the EIC. For the year 2002, the maximum credit is $2,506 for persons with one qualifying child, and $4,140 for persons with two or more qualifying children. The maximum credit is $376 for persons without a qualifying child. The following requirements apply to all taxpayers who may be eligible for the EIC.

To claim the earned income credit, you must have earned income. For 2002 earned income includes all income from working, but only if it is includible in gross income. Examples of earned income are wages, salaries, tips, and net earnings from self–employment. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.

If you have investment income of more than $2,550, you may not claim the EIC. Investment income includes taxable interest, tax exempt interest, dividend income, capital gain net income, certain income from rents or royalties, and certain income from passive activities. It does not include gains from selling business assets. For more information, refer to Publication 596 (PDF), Earned Income Credit.

To claim the EIC, your filing status must be single, head of household, qualifying widow or widower, or married filing jointly. You cannot claim the EIC if your filing status is married filing separately.

You (and your spouse, if filing jointly) must each have a valid social security number issued by the Social Security Administration. You cannot claim the EIC if you (or your spouse, if filing jointly) have a social security card that says "not valid for employment" and the number was issued so that the cardholder could receive a federally funded benefit, such as Medicaid. If you fail to provide a social security number for yourself (and your spouse, if filing jointly), the EIC will not be allowed.

If you (or your spouse, if filing jointly) are a qualifying child of another person, you cannot claim the EIC.

If you file Form 2555 (PDF), Foreign Earned Income, or Form 2555EZ (PDF), Foreign Earned Income Exclusion, you cannot claim the EIC.

If you are a nonresident alien, you can claim the EIC only if you are married to a United States citizen or resident, and you file a joint return and are taxed as a resident for all of 2002.

There are three more requirements you must meet to claim Earned Income Credit: age, dependency, and residency. To claim the EIC, you (or your spouse, if filing jointly) must be at least 25 but under age 65 at the end of 2002. If someone else can claim you (Or your spouse, if filing jointly) as a dependent on their return, you cannot claim the EIC. If someone else can claim you (or your spouse, if filing jointly) as a dependent, but does not, you still cannot claim the EIC. To claim the EIC, you (and your spouse, if filing jointly) must live in the United States for more than half the year. Military personnel stationed outside the United States on extended active duty are considered to live in the United States during that period for EIC purposes.

A qualifying child is a child who meets certain relationship, residency, and age requirements. The child must be your son, daughter, adopted child, grandchild, stepchild, or eligible foster child. An eligible foster child is a child who is your brother, sister, stepbrother, or stepsister (or a descendant of your brother, sister, stepbrother, or stepsister) or was placed with you by an authorized placement agency; who lived with you for more than half the year; and whom you cared for as you would your own child. Your child or foster child must have lived with you in the United States for more than half the year. Military personnel stationed outside the United States on extended active duty are considered to live in the United States during that period for EIC purposes. Your child must be under age 19 at the end of 2002 (or under age 24 at the end of 2002 and have been a full–time student during 2002), or any age if permanently and totally disabled. Refer to Publication 596 for exceptions to the time your child must have lived with you.

Your qualifying child must have a valid social security number issued by the Social Security Administration. If your qualifying child does not have a social security number or if your child's social security card reads "not valid for employment" and the number was issued so that the child could receive a federally funded benefit, such as Medicare, you cannot claim the EIC on the basis of that qualifying child. More information on social security numbers for purposes of the EIC can be found in Publication 596.

Beginning in 2002, if two or more persons may be able to claim the same qualifying child, the qualifying child can be claimed only by:

• The parents, if they file a joint return,
• The parent, if only one of the persons is the child's parent,
• The parent with whom the child lived the longest during the year, if two of the persons are the child's parent,
• The parent with the highest AGI if the child lives with each parent for the same amount of time during the year, or
• The person with the highest AGI, if none of the persons is the child's parent.

For 2002, to claim the EIC, your earned income must be less than $10,710 if you have no qualifying children, $29,201 if you have one qualifying child, or $33,178 if you have two or more qualifying children. AGI is the amount on line 35 ( Form 1040 (PDF)), line 21( Form 1040A (PDF)), or line 4 ( Form 1040EZ (PDF)).

Most people can use a worksheet in the instructions for Form 1040, 1040A, or 1040–EZ to figure this credit. People with more complex returns are required to figure their credit using a worksheet in Publication 596, or the IRS can figure the credit for you. If you want the IRS to figure the credit, carefully follow the steps in the instructions for your form or refer to Publication 596. This publication is also a valuable source for information on earned income credit in general.

If you expect to qualify for the EIC in 2003, you may be able to receive part of it in advance during the year. To see if you qualify to receive advance EIC, refer to Tax Topic 604.

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