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A Step-By-Step Guide to the Earned Income Credit

By Wendy Connick - Jan 6, 2018 at 9:19AM

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If you qualify for the Earned Income Credit, this valuable tax break is well worth taking.

The Earned Income Credit is one of the biggest tax credits around, especially since it's a refundable credit (meaning it can create a tax refund for you). However, the rules for qualifying and claiming this credit are rather tricky, to say the least. Fear not, because below you'll find a step-by-step description of how to claim this valuable credit.

Step 1: Check your qualifications

In order to qualify for the Earned Income Credit, you have to meet certain basic requirements. First, you, your spouse, and any qualifying children all have to have Social Security numbers. Second, you can't use the married filing separate filing status. Third, your investment income for the year must be $3,450 or less. And fourth, you have to have at least $1 in earned income for the year. "Earned income" includes wages, salaries, tips, and other pay earned from employment; self-employment income; and long-term disability benefits.

Confused man reading documents, using laptop

Image source: Getty Images.

Step 2: Add up your income

While you have to have at least some earned income to qualify, you can't exceed the income limits set by the credit. There are different income limits based on your filing status and on the number of qualifying children you have. To count as a qualifying child, the child in question has to be related to you (son, daughter, adopted child, stepchild, foster child, grandchild, sibling, or descendant of a sibling). They also have to be younger than 19 (or younger than 24 if a full-time student) and live with you more than half the year.

Here are the Earned Income Credit income limits for 2017:

Filing status

No qualifying children

One qualifying child

Two qualifying children

Three qualifying children

Single, head of household or qualified widow(er)

$15,010

$39,617

$45,007

$48,340

Married filing jointly

$20,600

$45,207

$50,597

$53,930

If you make more than the income limit that applies to you for the year, either in earned income or in adjusted gross income (AGI), you can't claim the Earned Income Credit. Your income for the year also affects how large your credit will be, as you'll see in the following section.

Step 3: Calculate your credit

If you meet the basic requirements to claim the credit, you then have to figure out just how much of a credit you can claim (or have the IRS work it out for you). The maximum amount for the Earned Income Credit is based on how many qualifying children you have; for 2017, the maximum credit available is as follows:

  • No qualifying children: $510

  • One qualifying child: $3,400

  • Two qualifying children: $5,616

  • Three or more qualifying children: $6,318

However, the actual amount you can claim for this credit is based on your income for the year and your filing status. If you want to simplify your tax return and your life, you can have the IRS calculate your Earned Income Credit for you. You'll need to write "EIC" next to line 66a (if using Form 1040) or line 42a (if using Form 1040A) or line 8a (if using Form 1040EZ) of whichever version of Form 1040 you're using. Leave the lines on your Form 1040/1040A/1040EZ that refer to total payments, overpayment, refund, and amount you owe blank, then complete Schedule EIC (if you have qualifying children) and send it in with the rest of your tax return.

If you prefer to calculate the credit yourself, you can use the Earned Income Tax Credit Assistant on the IRS website to do the math or you can consult the Earned Income Credit Table at the end of Publication 596. If you choose this approach, be sure that you're using the publication (or assistant) for the correct tax year – as of this writing, the 2017 versions are not yet available. Once you know the amount of the credit you're eligible to claim, write that amount on line 66a (if using Form 1040) or line 42a (if using Form 1040A) or line 8a (if using Form 1040EZ) of your tax return.

Step 4: Send in your tax return (and get ready to wait)

Once you've calculated your Earned Income Credit or opted to have the IRS calculate it for you, you can complete the rest of your tax return and send it in as usual. However, claiming the Earned Income Credit means that your refund for the year may be delayed. By law, the IRS must hold any refunds for tax returns including the Earned Income Credit or the Additional Child Tax Credit until mid-February, so that they can subject these returns to additional review.

Yes, it's a hassle to claim this credit and then have to wait for your refund on top of it. But given how much money you stand to make from it, the Earned Income Credit is well worth all the trouble.

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