25.10 Qualifying Tests for EIC

The earned income credit (EIC) may be claimed not only by workers with qualifying children who meet the tests below, but also, in limited cases, by childless workers. For 2012, the maximum earned income credit is $3,169 if you have one qualifying child, $5,236 if you have two qualifying children, $5,891 if you have three or more qualifying children, and $475 if you do not have a qualifying child. There is a phaseout of the credit (25.11). You look up the credit amount in IRS tables included in the tax form instructions. The EIC is “refundable” you will receive a refund from the IRS if the credit exceeds your tax liability.

Law Alert

Higher EIC for Some Families

A higher credit rate for 2012 is allowed to taxpayers with three or more qualifying children. Also, a more favorable phaseout range is allowed for married couples filing jointly. These increases are scheduled to expire at the end of 2012 but Congress may extend them to 2013; see the e-Supplement at jklasser.com for an update.

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Claiming the EIC for 2012 With Qualifying Children

You may claim the EIC on a 2012 return if you:

• Have earned income, such as wages and self-employment earnings, and also adjusted gross income, under the following amount: $36,920, or $42,130 if married filing jointly, if you have one qualifying child; $41,952, or $47,162 if married filing jointly, if you have two qualifying children; or $45,060, or $50,270 if married filing jointly, if you have three or more qualifying children. These are the amounts at which the credit completely phases out, so if your income is close to these amounts your credit will be low. The credit begins to phase out at much lower income levels (25.11).
• Have a qualifying child who lived with you in your main home in the U.S. for more than six months in 2012; see below.
• File a joint return if married. Married persons filing separately may not claim the EIC. If you lived apart from your spouse for the last half of the year, you may be able to claim the credit as a head of household.
• File Schedule EIC with your Form 1040 or Form 1040A. On Schedule EIC, you identify and provide information about a qualifying child. Your child’s Social Security number must be entered on Schedule EIC.
• Are not a qualifying child of another person.
• Include on your return your Social Security number and, if married, that of your spouse.

Caution

Recertification Required if EIC Denied

If the IRS denies an EIC by issuing a deficiency notice, the credit may not be claimed in a future tax year unless you show on Form 8862 that you are eligible to take the credit. If the IRS recertifies eligibility, Form 8862 does not have to be filed again in subsequent tax years unless the IRS again denies the EIC in a deficiency proceeding.

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A qualifying child.

A qualifying child is your son, daughter, adopted child, grandchild, stepchild, or descendents of any of these who at the end of 2012 is under age 19 or under age 24 and a full-time student (enrolled full time during any five months), or any age if permanently and totally disabled. The qualifying person must live with you for over half the year. Your brother, sister, step- or half-brother or step- or half-sister, or their descendents, who meet the age 19 or 24 test and live with you more than half the year also qualify if they are younger than you (or your spouse if you file jointly) or are permanently and totally disabled. A foster child who lives with you for more than half the year qualifies if the child was placed with you by a court order or by an authorized placement agency.

Household requirement.

The qualifying child must have lived with you in your main home in the U.S. for more than six months. Temporary absences for school, vacation, medical care, or detention in a juvenile facility count as time lived at home.

A person in the U.S. Armed Forces who is stationed outside the U.S. on extended active duty is treated as maintaining a main residence within the U.S.

If you are married, you must file a joint return with your spouse to claim the credit. However, if your spouse did not live in your household for the last six months of the year, and you maintained a home for a child who lived with you for more than half of the year, you may claim the credit as a head of household (1.12).

Permanently and totally disabled.

A person is permanently and totally disabled if: (1) he or she cannot engage in any substantial gainful activity because of a physical or mental condition and (2) a physician determines that the condition has lasted or is expected to last for at least a year or lead to death.

Caution

Denial of Future Credits for Recklessness or Fraud

A taxpayer who negligently or fraudulently claims the EIC is prohibited from claiming future credits over a period of several years. The credit is disallowed for two years from the tax year for which it is determined that the EIC claim was claimed recklessly or in disregard of the rules. The period increases to 10 years from the most recent tax year for which it is found that the EIC was claimed fraudulently.

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Qualifying child of two or more people.

“Tie-breaking” rules determine who can take the EIC if a child is a qualifying child of more than one person.

If both parents are eligible to claim the credit for the same qualifying child and they do not file a 2012 joint return, the parent with whom the child resided for the longer period during the year may claim the child. If the child lived with each parent for the same amount of time, the child will be treated as the qualifying child of the parent who had the higher adjusted gross income (AGI) for 2012.

If a parent and one or more nonparents are otherwise entitled to claim the child as a qualifying child, only the parent may claim the credit for the child. If none of the persons otherwise entitled to treat the child as a qualifying child are the child’s parent, the child will be treated as the qualifying child of the person who had the highest AGI for 2012.

Married child.

If your child was married at the end of 2012, he or she is your qualifying child only if you can claim an exemption for the child under the rules at 21.3, or you would be so entitled except that the noncustodial parent is given the exemption under the rules at 21.7. However, if your child files a joint return, he or she is not your qualifying child unless the joint return is filed only as a refund claim.

Nonresident aliens.

An individual who is a nonresident alien for any part of the year is not eligible for the credit unless he or she is married and an election is made by the couple to have all of their worldwide income subject to U.S. tax.

Claiming the Credit for 2012 Without Qualifying Children

If you do not have a qualifying child, you may claim the EIC on a 2012 return if you:

• Have earned income, such as wages and self-employment earnings and also adjusted gross income under $13,980 ($19,190 if married filing jointly). These are the amounts at which the credit is completely phased out. The phaseout threshold is considerably lower (25.11).
• Have your main home in the U.S. for more than six months in 2012.
• Are at least 25 but under age 65 at the end of 2012. If filing a joint return, either you or your spouse must satisfy this age test.
• File a joint return if married, unless you lived apart for the last six months and qualify to file as a head of household.
• Are not a dependent of another taxpayer. If filing jointly, your spouse also must not be another taxpayer’s dependent.
• Are not a qualifying child of another taxpayer. If filing jointly, your spouse also must not be another taxpayer’s qualifying child.
• Include your Social Security number on your return, and, if married, that of your spouse.