The Earned Income Tax Credit (EITC) is one of the most misunderstood tax credits in the U.S. It is complicated as well, leading some people not claiming it simply because they do not understand it. That is a shame. Claiming the credit could be worth thousands of dollars, depending on a taxpayer’s circumstances.
This post is designed to help readers understand the qualifications for claiming the EITC. There is a lot to consider here, so fasten your proverbial seat belt and hold on. Should you get to the end of this post and not understand what you have read, you can always have your taxes prepared by a professional. A professional will know whether you qualify for the EITC or not.
Basic Qualifications
Thanks to how the EITC has been crafted, the basic qualifications apply to most people. Note that the credit is intended to help working-class people offset federal income taxes and FICA (Social Security and Medicare) withholding. Because it is income-based, you have to be on the lower end of the income scale to qualify.
Here are the basic qualifications:
- You must file as a single, married filing jointly, or as head of a household
- You must be between the ages of 25 and 65
- You must house dependent children or other qualifying dependents for at least half the tax year
- You must earn income from either a job or as the owner of a business or farm.
There are special circumstances for people who want to claim the EITC without having dependent children or other qualifying dependents to claim. They must meet all the other basic requirements and must not file as married filing separately.
Moving on, let us talk about qualifying dependents. A dependent child is usually a natural, adopted, step, or foster child or the descendant thereof – i.e. grandchild. A dependent child could also be a natural, half, or step sibling or the descendant thereof who is younger than the taxpayer. At any rate, qualifying children must reside with the taxpayer for at least six months during the tax year for which the credit is being claimed.
Special Rules
There are occasions when certain special rules apply to the EITC. Those special rules are listed in this section. Again, if you are unsure whether they apply to you or not, consult a tax professional.
Members of the Military
Members of the military who otherwise qualify for the EITC do not have to count their nontaxable military pay toward their total income. Examples of nontaxable military pay include combat pay, housing allowance, and the Basic Allowance for Sustenance. Some disability benefits do have to be counted as earned income.
Members of the Clergy
Ministers, priests, and members of various religious orders are generally considered self-employed if taxes are not withheld and paid on their behalf. Members of the clergy are eligible for the EITC but must include all forms of compensation – including housing benefits – as earned income.
Disability Income
Disability retirement benefits – either yours or a dependent’s – are considered earned income until the recipient reaches retirement age. As such, they must be counted toward determining EITC eligibility. Benefits from SSI, Social Security disability, and military disability do not have to be counted toward earned income.
Now you know the qualifications for claiming the EITC. Look into it if you think you might be eligible as it could be worth quite a bit of money at tax time. If you do qualify, consider having your refund direct deposited into your bank account. You will get your money much faster that way.
