Q   What is the EIC?

The earned income credit (EIC) is a tax credit for certain people who work and earned income under $38,348. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.

Q   Can I Claim the EIC?

To claim the EIC when you file your tax return in April, you must meet certain rules. These rules are summarized below:

1. Your adjusted gross income (AGI) must be less than $36,348 ($38,348 for married filing jointly) if you have more than one qualifying child.
   
   If only one qualifying child, then must be less than $32,001 ($34,001 for married filing jointly).  If no children, then must be less than $12,120 ($14,120 for married).
   
   
2. Must have a valid social security number.
   
   
3. Your filing status cannot be "Married filing separately."
   
   
4. You must be a U.S. citizen or resident alien all year.
   
   
5. You cannot file Form 2555 or Form 2555-EZ.
   (relating to foreign earned income)
   
   
6. Your investment income must be $2,800 or less.
   
   
7. You must have earned income.
   
   
8. If you have a qualifying child, your child must meet the relationship, age and residency test. The child cannot be used by more than one person to claims EIC. You cannot be a qualifying child of another person.
   
   
9. If you do not have a qualifying child, you must be at least 25 years old, but under age 65.  You cannot be a dependent of another person. You cannot be a qualifying child of another person.  You must have lived in the U.S. more than half of the year.
   
   
10. Your earned income must be less than $36,348 ($38,348 for married filing jointly) if you have more than one qualifying child. If only one qualifying child the, then must less than $32,001 ($34,001 for married filing jointly). If no children, then must be less than $12,120 ($14,120 for married).

Q   How Do I Figure the Amount of the EIC?

If you can claim the EIC, you can either have the IRS figure the amount for your credit, or you can figure it yourself.  You can look up the amount of the credit in Publication 596 Earned Income Credit.

Q   How can I get EIC in My Paycheck during the year?

You may prefer to get some of next years EIC throughout the year, rather than wait and get the EIC after you file your tax return.  This is called the Advance Earned Income Tax Credit.

Q   What is the Advance Earned Income Tax Credit (Advance EITC)?

The Advance EITC allows those taxpayers who expect to qualify for the Earned Income Tax Credit ( EITC) and have at least one qualifying child to receive part of the credit in each paycheck during the year the taxpayer qualifies for the credit.

Q   Why Should I be Interested in the Advance EITC?

If you are working and:

1. you expect that your 2007 adjusted gross income (AGI) and earned income will each be less than $33,241 ($35,241 if you expect to file a joint return for 2007)
   
   
2. you expect to have at least one qualifying child, and
   
   
3. you expect to qualify for the EIC, you can choose to get part of the credit with your paycheck.

The Advance Earned Income Tax Credit (AEITC) for  Tax Year 2007 maximum credit the employer is allowed to provide throughout the year with the employee’s paycheck is $1,712.

Q   How do I get Advance EITC payments?

See if you qualify for AEITC payments by completing the five questions on the back of Form W-5, Earned Income Credit Advance Payment Certificate.

If you qualify, complete the bottom part of the Form W-5 and give it to your employer. Then based on your income, your employer adds additional money to your take-home pay in each paycheck.

If your only income is from self-employment, you cannot qualify for Advance EITC payments.

Q   Could my Advance EITC payments change?

Yes, if during the year, your income rises above the dollar limit, or you no longer qualify for the EIC, you will need to fill out a new Form W-5 and give it to your employer to stop the advance payments.

If you no longer qualify for the Advance EITC, you will have to repay all Advance EITC money when you file your tax return.

Q   If I get the Advance EITC, do I have to file a tax return?

Yes, If you receive the Advance EITC, you must file a tax return. The form W-2 provided by your employer will show the amount of the Advance EITC you received. This amount must be reported on your tax return.  You will also be able to claim any additional credit to which you may be entitled.