Lesson 5 Earned Income Credit (EIC)

Objectives Determine which taxpayers are eligible for the earned income credit using Publication 4012 and Form Determine when a taxpayer has a qualifying child for the EIC Calculate and report the credit using the EIC worksheet Explain how to request advance earned income credit (AEIC) payments Report AEIC payments on the tax return

Intake/Interview Process Form – Intake and Interview Sheet – Credits Section

Military Combat Pay Inclusion of combat pay as earned income

Who Can Claim The EIC General Eligibility Rules Earned income and adjusted gross income limited Have valid SSN No MFS filing status A US citizen or resident alien Not file Form 2555 or 2555-EZ Investment income limitation

Who Can Claim The EIC General Requirements - continued Have earned income Cannot be qualifying child of another person

Investment Income Includes: –Taxable interest –Tax-exempt interest –Ordinary dividends –Capital gain net income –Certain net income form rents and royalties –Net income from passive activities

Earned Income Review notes –While an inmate –While an household employee –Disability benefits –Disability insurance payments Examples of Earned Income

EIC Interview Tips EIC General Eligibility Rules

Who Can Claim The Credit With A Qualifying Children Must meet all 3 tests –Relationship Test –Age Test –Residency Test

Definitions Eligible foster child Adopted child Permanently and totally disabled Child who was kidnapped

Qualifying Child of More than One Taxpayer Cannot be used by more than one person EIC Tie-Breaker Rule

Children of Divorced or Separated Parents If the rules for Divorced or Separated Parents apply: –The custodial parent can claim the EIC benefit even if he or she cannot claim the child as a dependent

Interview Tips EIC With A Qualifying Child

Who Can Claim the EIC Without a Child Lived in the United States more than half the tax year. At least 25 but under age 65 on Dec. 31. Not qualify as the dependent of another person.

EIC Eligibility Requirements - Summary Rules for Everyone Rules If You Have a Qualifying Child Rules If You Do Not Have a Qualifying Child Earned Income and AGI Limitations

Determining Eligibility and Figuring the Credit EIC Worksheets EIC Tables

Schedule EIC for Qualifying Child(ren) Reporting Qualifying Child Information

EIC – General Information EIC – Eligibility Tools Common EIC Return Errors Disallowed Earned Income Credit Advance Earned Income Credit Payments (AEIC)

Quality Review (QR) Form 8158 – Quality Review Checklist Adjustments, Deductions, and Credits Section

Lesson Summary General EIC Requirements & Eligibility Rules Schedule EIC Common EIC Return Errors Disallowed EIC Advance EIC Payments