Last Updated : January 14, 2009
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Schedule EIC

Schedule EIC

(Earned Income Credit)

The earned income credit, or EIC, is a refundable credit for workers who meet certain requirements and file a tax return. Persons with or without a qualifying child may claim the EIC. The maximum credit taxpayer can get will depend on whether the person has no qualifying children, one qualifying child, or more than one qualifying child. Additionally, the maximum credit possible can change each year due to inflationary adjustments.

If the filing status is married filing separately then, the taxpayer cannot get the earned income credit.

Earned income credit is not allowed if the taxpayer’s AGI exceeds the following limits set for 2006: The limits are given below

  • Taxpayer’s AGI must be less than

         $36,348 ($38,348 for married filing jointly) if have more than one qualifying child,
         $32,001 ($34,001 for married filing jointly) if have one qualifying child, or
         $12,120 ($14,120 for married filing jointly) if do not have a qualifying child.

  • AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1400. If taxpayer’s AGI is equal to or more than the applicable limit listed above, taxpayer cannot claim the EIC.

 

Brief Idea of Earned Income credit:
Given below are certain points which are to be kept in mind while taking this credit.
 
EIC claimed when you are not eligible:
If the taxpayer takes the EIC even though he is not eligible and it is determined that the error is due to reckless or intentional disregard of the EIC rules, he will not be allowed to take the credit for 2 years even if he otherwise eligible to do so. If the taxpayer fraudently takes the EIC, he will not be allowed to take the credit for 10 years. The taxpayer may also have to pay the penalties.

Reporting Advance Payments of EIC received in 2006:
If you received advance payments of EIC in 2006, it is necessary for the taxpayer to file Form 1040 OR form 1040A to report the payments.
Form W-2 box-9 of the taxpayer will show the amount he received. This amount is to be reported on line 61 (Form 1040) or line 36 (Form 1040A).

Disallowance of EIC:
If the taxpayer claims the EIC and it is disallowed later, the taxpayer may have to complete the additional form 8862 to claim the credit in a later year.

Exceptions: The taxpayer need not file Form 8862 if either of the two below applies:

(1)After your EIC was reduced or disallowed in the earlier year:
    a. You filed Form 8862 in a later year and your EIC for that later year was allowed, and
    b. Your EIC has not been reduced or disallowed again for any reason other than a math or clerical error.

(2) You are taking the EIC without a qualifying child for 2006 and the only reason your EIC was reduced or disallowed in the earlier year was because the IRS determined that a child listed on Schedule EIC was not your Qualifying Child.

For more details regarding EIC refer publication 596.

Qualifying Child:
A qualifying child for the EIC is a child who is your Son, Daughter, stepchild, Foster child, brother, sister, stepbrother, stepsister, or a descendent of any of them and was under age 19 at the end of 2006 or under age 24 at the end of 2006 and a student or any age and permanently and totally disabled and who lived with you in the United States for more than half of 2006.
Qualifying Child Information:

Line 1 to Line 3:
The information on these lines comes from General info sheet. When you enter the name of the child, SSN, Year of birth and other information on General info sheet ”DEPENDENTS”,
and check the checkbox for claiming EIC, the program will transfer the information
of child here.

Line 4a and line 4b:
The taxpayer should check the checkbox manually of this line if the child was born
before 1988.
If the child is age 19 or older the child must either be a student or under age 24, or permanently and totally disabled during 2006.

  • STUDENT: A student is a child who during any part of 5 calendar months of 2006 was enrolled as a full-time, on-farming training course given by a school or a state, country, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on the job-training course, correspondence school, or Internet school.
  • PERMANENTLY AND TOTALLY DISABLED: A person who, at any time in 2006, cannot engage in any substantial gainful activity because of a physical or mental condition and a doctor has determined that this condition (a)has lasted or can be expected to last continuously for at least a year, or (b)can be expected to lead to death.

If the child is married or also the Qualifying child of another person, refer publication 596.

Line 5:
If details of the child are entered in General Information sheet in panel “Dependents” the package and checkbox yes for schedule EIC is checked then the information flows on this line.
A Qualifying child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendent of any of them.
For definition of Foster child refer the publication 596.

Line 6:
If details of the child are entered in General Information sheet in panel “Dependents” the package and checkbox yes for schedule EIC is checked then the information flows on this line.
The basic condition to be satisfied is the child must live with the taxpayer in the United States for more than half of 2006.
If the child was born or died during the year and the taxpayer’s home was the child’s home for the entire time he or she was alive in 2006, Enter 12 for the number of months in the General information Sheet.
Temporary absences for special circumstances, such as for school, vacation, medical care, military service, or detention in a Juvenile facility, considered as time lived in home.

EIC Eligibility and Calculation Worksheet:
You must fill up EIC Worksheet to check whether taxpayer is eligible for Earned Income Credit or not. Most of the entries in this worksheet is calculated, program automatically calculates the EIC on the basis of the information entered in return.

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