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How the Earned Income Tax Credit Works

By: Dave Roos  | 

Who Qualifies for the Earned Income Tax Credit?

To qualify for the Earned Income Tax Credit (EITC), you need to meet some basic requirements. First of all, you need to have a Social Security number. You don't necessarily have to be a U.S. citizen, but you have to legally reside in the United States for at least half of the tax year. You also cannot be claimed as a dependent child by anyone else [source: IRS].

We'll talk in detail about income limits soon, but there are certain kinds of income that will automatically disqualify you for the EITC. Specifically, if you have foreign earned income that requires you to file form 2555 or 2555EZ, then you can't claim the tax credit. Also, if you report investment income that exceeded $3,650 in the tax year you're claiming the credit — regardless of filing status or number of children — you're ineligible [source: IRS]. Sources of investment income include interest and dividends, capital gains from the sale of stocks and bonds, and rental property.

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If you're claiming the EITC without children, there are additional requirements, namely that you (and your spouse if you're filing jointly) are U.S. citizens (not resident aliens), that your main home is within the United States for more than half the year, and that you're between the ages of 25 and 65 [source: IRS]. There is no such age restriction if you're claiming the EITC with children.

To claim the EITC with children, you need to make sure that your kids are qualifying children in the eyes of the Internal Revenue Service (IRS). The IRS understands that not all families fit the traditional mold, but it asks that qualifying children pass three basic tests: age, relationship and residency.

As for age, a qualifying child must be younger than 19, unless he or she is a full-time student for at least five months of the year, in which case the child must be younger then 24. The child must also be younger than both you and your spouse, if you're filing as a married couple. If the child is permanently disabled, then there is no age restriction [source: IRS].

For the relationship test, a qualifying child is basically any child that lives with you and is related to you. That list not only includes biological children, stepchildren, adopted and foster children, but also grandchildren, younger brothers and sisters, half siblings and step siblings, nieces and nephews, cousins, and any of their children [source: IRS].

To pass the residency test, the qualifying child must live with you in the United States for more than half of the tax year [source: IRS].

Since the Earned Income Tax Credit (EITC) is built into the tax code, you must file a tax return to qualify. Even if you owe no money in income tax, you need to file a tax return to claim the EITC. We'll explain more about claiming the EITC later in the article.

Income is the most important qualifying factor for receiving an EITC. Next we'll look at the different income limits for married filers, single filers and families of various sizes.