Publication 596 (2005), Earned Income Credit (EIC)

Introduction- Begin Here

What is the EIC?

The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $37,263. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.

Can I Claim the EIC?

To claim the EIC, you must meet certain rules. These rules are summarized in Table 1.

Table 1. Earned Income Credit in a Nutshell

First, you must meet all the rules in this column.		Second, you must meet all the rules in one of these columns, whichever applies.		Third, you must meet the rule in this column.
Chapter 1. Rules for Everyone		Chapter 2. Rules If You Have a Qualifying Child	Chapter 3. Rules If You Do Not Have a Qualifying Child	Chapter 4. Figuring and Claiming the EIC
1. Your adjusted gross income (AGI) must be less than: •$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child, •$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or •$11,750 ($13,750 for married filing jointly) if you do not have a qualifying child. (See page 6.)	2. You must have a valid social security number. (See page 6.) 3. Your filing status cannot be “Married filing separately.” (See page 7.) 4. You must be a U.S. citizen or resident alien all year. (See page 7.) 5. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). (See page 8.) 6. Your investment income must be $2,700 or less. (See page 8.) 7. You must have earned income. (See page 10.)	8. Your child must meet the relationship, age, and residency tests. (See page 13.) 9. Your qualifying child cannot be used by more than one person to claim the EIC. (See page 16.) 10. You cannot be a qualifying child of another person. (See page 20.)	11. You must be at least age 25 but under age 65. (See page 21.) 12. You cannot be the dependent of another person. (See page 21.) 13. You cannot be a qualifying child of another person. (See page 22.) 14. You must have lived in the United States more than half of the year. (See page 22.)	15. Your earned income must be less than: •$35,263 ($37,263 for married filing jointly) if you have more than one qualifying child, •$31,030 ($33,030 for married filing jointly) if you have one qualifying child, or •$11,750 ($13,750 for married filing jointly) if you do not have a qualifying child. (See page 23.)

Do I Need This Publication?

Certain people who file Form 1040 must use Worksheet 1 in this publication, instead of Step 2 in their Form 1040 instructions, when they are checking whether they can take the EIC. You are one of those people if any of the following statements are true for 2005.

You are filing Schedule E (Form 1040).
You are reporting income or a loss from the rental of personal property not used in a trade or business.
You are reporting income on Form 1040, line 21, from Form 8814 (relating to election to report child's interest and dividends).
You are reporting an amount on Form 1040, line 13, that includes an amount from Form 4797.

If none of the statements above apply to you, your tax form instructions have all the information you need to find out if you can claim the EIC and to figure the amount of your EIC. You do not need this publication. But you can read it to find out whether you can take the EIC and to learn more about the EIC.

How Do I Figure the Amount of EIC?

If you can claim the EIC, you can either have the IRS figure the amount of your credit, or you can figure it yourself. To figure it yourself, you can complete a worksheet in the instructions for the form you file. To find out how to have the IRS figure it for you, see chapter 4.

How Can I Quickly Locate Specific Information?

You can use the index to look up specific information. In most cases, index entries will point you to headings, tables, or a worksheet.

Is There Help Online?

Yes. You can use the EITC Assistant at www.irs.gov/eitc to find out if you are eligible for the credit. The EITC Assistant is available in English and Spanish.

How Can I Get EIC in My Paycheck in 2006?

You may prefer to get some of next year's EIC throughout the year, rather than wait and get EIC after you file your tax return. Chapter 6 explains advance payment of EIC and tells how, if you have a qualifying child, you may be able to get some of the EIC in your paycheck in 2006.

What's New

Earned income amount is more. The maximum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:

You have more than one qualifying child and you earned less than $35,263 ($37,263 if married filing jointly),
You have one qualifying child and you earned less than $31,030 ($33,030 if married filing jointly), or
You do not have a qualifying child and you earned less than $11,750 ($13,750 if married filing jointly).

Your adjusted gross income also must be less than the amount in the above list that applies to you. For details, see Rules 1 and 15.

Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased to $2,700. See Rule 6.

Hurricane Katrina victims. If you lived in the Hurricane Katrina core disaster area on August 25, 2005, and your earned income for 2005 is less than your earned income for 2004, you can choose to figure your 2005 EIC using your 2004 earned income. This also applies if you lived in the Hurricane Katrina disaster area, but outside the core disaster area, and you were displaced from your main home because of the hurricane. For more information, see Publication 4492.

Qualifying child. There are some changes to the definition of qualifying child. A qualifying child can include your eligible foster child, your brother, or your sister, whether or not you care for them as you would your own child. See Rule 8.

If you and someone else have the same qualifying child, only one of you can use that child to claim the following tax benefits: the child's exemption, the child tax credit, head of household filing status, the credit for child and dependent care expenses, and the EIC. The other person cannot take any of these five tax benefits unless he or she has a different qualifying child. For details, see Rule 9.

Form 8836. If you received Form 8836, Qualifying Children Residency Statement, you have been selected to participate in the EIC certification pilot program. File the form with the IRS, following the form instructions, to show that your child met the residency test described in Rule 8. If you did not receive the form, you do not need to get it or file it. You have to file Form 8836 only if it was mailed to you.

Reminders

Increased EIC on certain joint returns. A married person filing a joint return may get more EIC than someone with the same income but a different filing status. As a result, the EIC table has different columns for married persons filing jointly than for everyone else. When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have.

Earned income credit has no effect on certain welfare benefits. Any refund you receive because of the EIC and any advance EIC payments you receive will not be considered income when determining whether you are eligible for the following benefit programs, or how much you can receive from these programs. However, if the amounts you receive are not spent within a certain period of time, they may count as an asset (or resource) and affect your eligibility.

Medicaid and supplemental security income (SSI).
Food stamps.
Low-income housing.

Temporary assistance for needy families (TANF) benefits may be affected. Please check with your state.

Disallowed EIC. If you claim the EIC and it is later disallowed, you may have to complete an additional form if you want to claim the credit in a later year. See chapter 5 for more information.

EIC questioned by IRS. The IRS may ask you to provide documents to prove you are entitled to claim the EIC. We will tell you what documents to send us. These may include: birth certificates, school records, medical records, etc. We will also send you a letter with the name, address, and telephone number of the IRS employee assigned to your case. The process of establishing your eligibility will delay your refund.

Reporting advance payments of EIC received in 2005. If you received advance payments of EIC in 2005, you must file Form 1040 or Form 1040A to report the payments. Your Form W-2, box 9, (as shown in Figure 1) will show the amount you received. Report the amount on line 61 (Form 1040) or line 37 (Form 1040A).

Figure 1. Reporting Advance EIC

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Spanish version of Publication 596. You can order Publicación 596SP, Crédito por Ingreso del Trabajo, from the IRS. It is a Spanish translation of Publication 596. See How To Get Tax Help in the Appendix to find out how to order this and other IRS forms and publications.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

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Publication 596 - Introductory Material