Lesson 5

Earned Income Credit (EIC)

Objectives

• Determine which taxpayers are eligible for the earned income credit using Publication 4012 and Form 13614

• 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 13614 – Intake and Interview Sheet – Credits Section

Military Combat Pay

Inclusion of combat pay as earned income

Who Can Claim The EICGeneral 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 EICGeneral 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