The Earned Income Tax Credit (EITC),
sometimes called the Earned Income Credit (EIC), is a refundable
Federal income tax credit for low-income working individuals and
families. Congress originally approved the tax credit legislation in
1975 in part to offset the burden of social security taxes and to
provide an incentive to work. The credit reduces the amount of
Federal tax owed and can result in a refund check. When the EITC
exceeds the amount of taxes owed, it results in a tax refund to
those who claim and qualify for the credit.
Income and family size determine
the amount of the EITC. To qualify for the credit, both the earned
income and the modified adjusted gross income for 2001 must be less
than $28,281 for a taxpayer with one qualifying child, $32,121 for a
taxpayer with more than one qualifying child, and $10,710 for a
taxpayer with no qualifying children. The EITC Eligibility Checklist
on the last page of IRS' Publication 596, Earned Income Credit, may be used to
quickly determine eligibility for the credit.
The taxpayer may figure the credit
by using a special worksheet included as part of the EITC
instructions in the 1040, 1040A, and 1040EZ tax packages.
Instructions in these packages require some taxpayers to use a
worksheet in Publication 596 instead of the worksheet in the tax
package.
For 2002, some employees with at
least one child living with them may be entitled to receive advance
EITC payments in their paychecks. The employee must file Form W-5,
Earned Income Credit Advance Payment Certificate, with an employer
to receive the advance payments. The employer then pays part of the
credit to the employee in advance throughout the year. The taxpayer
claims the rest when filing the 2002 Federal tax return.
The EITC does not generally affect
eligibility for Medicaid, Supplemental Security Income (SSI), food
stamps, or low-income housing.
This web site provides specific
information on the EITC Program, including Publication 596.
Taxpayers may figure the EITC themselves, have the IRS figure the
EITC by following instructions on page 25 of Publication 596, use
the services of a tax professional, or get assistance from a
Volunteer Income Tax Assistance (VITA) site. To find their closest
VITA site, taxpayers may call the IRS at 1-800-829-1040.
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