| The earned income tax credit, often referred to as earned income credit, or EIC, is a valuable credit for people who work but do not earn high incomes. It is valuable because it's refundable, which means you can get paid the credit amount if you qualify. In 2004, the credit could be worth as much as $4,300 with two qualifying children; $2,604 with one qualifying child, or $390 with no children. As I mentioned in the August issue, the new uniform definition of a child, effective 2005, will apply for the earned income tax credit as well. A qualifying child must be your biological or adopted child, stepson or stepdaughter, a foster child placed in your home by a government agency, or a direct descendant (grandchild, great-grandchild, etc.); or your biological brother, sister, adopted brother or sister, or a direct descendant (your nephew, niece, grandnephew, grandniece, etc.). If you have two qualifying children under age 19 (under age 24 if full-time student, or any age if disabled) who live with you in the United States for more than six months during 2005, the refundable credit can be as high as $4,400, depending on your income and filing status. You do not need to claim the qualifying child/person as your dependent to qualify for earned income credit. For an example: Your 23-year-old brother, a full-time student, lives with you for seven months; he also has a job and supports himself more than 50 percent, so you cannot claim him as your dependent. But you could qualify for earned income credit if you have some earned income (from wages or self-employment) and your adjusted gross income is under $37,263 (for joint filers with two qualifying children) in 2005. You do not qualify for this credit if your filing status is married filing separately. You also do not qualify for the credit if you are a qualifying child for another person. You may not claim this credit if your investment income is more than $2,700 in 2005. You must have a valid Social Security number for yourself, your spouse (if filing jointly), and all qualifying children. If the words "Not valid for employment" are printed on your Social Security card, the number is not valid for earned income credit purposes. (You should get a new Social Security card when your immigration status changes to U.S. citizen or permanent resident.) If you are a resident alien authorized to work in the United States, you may qualify for the earned income credit. Nonresident aliens generally cannot claim this credit. Taxpayers who claim foreign earned income exclusion may not claim the credit. Taxpayers without qualifying children may claim the earned income credit if they are at least 25 years old but under 65 as of Jan.1, 2006; live in the United States more than six months; have some earned income; are not claimed as a dependent on someone else's return; are not using married-filing-separately status; and have adjusted gross income of less than $13,750 in 2005. About the author Mei-Feng Moe is a Master Tax Advisor certified by H&R Block. In addition to giving tax advice and preparing tax returns, she has also been teaching income tax courses for a number of years. She is an enrolled agent who may represent taxpayers before the IRS. She also holds series 6 and series 63 security licenses./This column welcomes your questions on tax issues. Please e-mail your questions to dlc@triwest.net. Your questions will be answered in a future issue. |
| Your Master Tax Advisor Those Wonderful Children: Earned Income Tax Credit |
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| By Mei-Feng Moe |
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