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Earned Income
Tax Credit
Summary
The EITC is a refundable federal income tax credit
for low-income working individuals or families. The credit was
created in 1975 in part to offset the burden of Social Security
taxes and as a work incentive. The amount of the credit varies but
it is generally determined by income and family size.
The
maximum amount of earned income allowed is higher for 2005 than it
was for 2004. A taxpayer may be able to take the credit for 2005 if
they:
The maximum amount of investment income also increased to $2,700.
Generally, a qualifying child must meet relationship and residency
requirement.
Do You Qualify for EITC?
To qualify, you must meet certain requirements and file a U.S.
Individual Income Tax Return. As described below, some EITC rules
apply to everyone. There are also special rules for people who have
children and for those who do not.
Individuals and families must meet certain general
requirements:
- You must have earned income.
- You must have a valid Social Security Number for yourself,
your spouse (if filing jointly) and your qualifying child.
- Investment income is limited to $2,700.
- Your filing status cannot be “married filing separately.”
- Generally, you must be a U.S. citizen or resident alien all
year.
- You cannot be a qualifying child of another person.
- You cannot file Form 2555 or Form 2555-EZ (related to foreign
earned income.)
Your income cannot exceed certain limitations. For Tax Year 2005,
you must have adjusted gross income of less than:
- $35,263 ($37,263 if married filing jointly) with two or more
qualifying children.
- $31,030 ($33,030 if married filing jointly) with one
qualifying child.
- $11,750 ($13,750 if married filing jointly) with no qualifying
children.
If you claim a child, he or she must meet three eligibility
tests:
- Residency Test – The child must have lived with you in the
United States for more than half of 2005.
- Relationship Test – The child must be your son, daughter,
stepchild, foster child, brother, sister, stepbrother, stepsister,
or a descendant of any of them. Your child includes:
- A foster child who was placed with you by an authorized
placement agency, or by judgment, decree, or other order of any
court of competent jurisdiction.
- A legally adopted child or a child lawfully placed with you
for legal adoption
- Age test – At the end of 2005, the child must have been under
age 19, a full-time student under age 24 or any age if permanently
and totally disabled at anytime during 2005.
Your qualifying child cannot be used by more than one person to
claim EITC. If a child meets the rules to be a qualifying child of
more than one person, only one person can treat that child as a
qualifying child and claim EITC.
If you don’t have a child, you must meet three additional
tests:
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