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Tax credits: Earned Income Tax Credit
 The
Earned
Income Credit (EIC) is a tax benefit for working people with
low or moderate incomes. You don't have to have children to qualify
for the credit, but if you do, you generally will get more of a
tax benefit. The credit is highest for parents filing jointly, lower
for those filing singly, and very low for people without children.
Workers who qualify for the credit and file a federal
tax return can get back some or all of the federal income tax that
was taken out of their pay during the year. They may even get extra
cash back from the IRS.
There also is an advance payment feature that allows
employers to put extra money in qualified workers' pay envelopes.
That lets these workers take home the money each pay period a little
at a time instead of waiting and getting it in one lump sum when
they file their tax returns.
Credit not without critics
While the earned income tax credit is a big help to many filers,
it does have its critics. Many taxpayers complain that the credit
is hard to compute, its eligibility tests are cumbersome, figuring
qualifying income is difficult, and the definition for dependent
status differs from the one used when filing a regular income tax
Form 1040.
Confusion also arises in cases where custody
of a child is shared or in question. In these cases, the IRS
has established guidelines to help parents or guardians determine
which taxpayer may name the child in connection with the EIC.
But if you think you can benefit from the earned income
tax credit, don't let these concerns stop you from filing for it.
For more information, see "How to Figure the Credit Yourself"
in part D of IRS Publication
596. Remember, the credit amount is phased out if a taxpayer
exceeds earning limits, which usually are adjusted annually.
Once you know that you qualify for the EIC, you can
figure the amount of the credit by using the Earned Income Credit
Worksheet and the Earned Income Credit Table in the
instruction booklet for Form
1040, Form
1040A, or Form
1040EZ. Remember, the credit amount is phased out if a taxpayer
exceeds earning limits, which usually are adjusted annually.
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