How Many Dependents Get an Earned Income Credit?

The Earned Income Tax Credit is not a refund of tax monies paid by a taxpayer, but rather a credit for low- to moderate-income families with dependent children. This credit can be claimed during tax preparation and the funds added to any refund that is owed to the taxpayer. It also can offset payroll taxes owed through self-employment. In some instances those below the poverty line with earned income and a single filing status can claim the credit, although the amount reduces greatly.

Qualifying

Before the Earned Income Credit (EITC) can be taken, the taxpayer must prepare IRS Form EIC to see if he qualifies. The EITC rules are strict and the credit or qualification for it depends on the household size, filing status, income and dependents. Under the tax year 2008 laws, a taxpayer with no children who had a filing status of single must make below $12,850 to qualify. For those who are married or filing as Head of Household, the income levels change.

Dependents

Claiming dependents on your 1040 tax form and claiming the same dependent for an EITC credit is different. Just because a person may qualify as a taxpayer's dependent, does not mean that dependent is eligible for the EITC credit. A dependent must be under 19 years old and reside with the taxpayer for 12 months of the year to qualify for a full credit. If residency is only a partial year, the credit will be adjusted. You must provide more than 50 percent of the expense for the dependent as well.

Claiming the Credit

To take advantage of the Earned Income Credit, file Schedule EITC with the 1040 tax forms for the current filing year. Provide the child's complete name and Social Security number on the EITC schedule. Pay special attention to Box 5 and Box 6. In Box 5, place the child's relationship to the taxpayer. Box 6 should list the total number of months the child resided with the taxpayer. These are often left blank, and will delay your credit if not properly completed. The maximum number of children that can be claimed for the EITC credit is two, no matter what the taxpayer's income or filing status. For taxpayers with four children, two can be claimed on Schedule EITC, while all four can be claimed as deductions on Tax Form 1040

Benefits

The benefits of the EITC are great for moderate- to low-income working families. This credit can add extra funds to a weekly paycheck through the Advance EITC credit. To take advantage of the Advance EITC credit, alert your payroll professional and the IRS of this decision. For the average taxpayer with an ETIC credit of $3,000, an extra $57 can be seen on a weekly paycheck.

Audits and Violations

There are stiff penalties when a taxpayer takes advantage of the EITC if she did not qualify for it. Along with fines, taxpayers will not be allowed to claim the EITC for 10 years. During this 10-year period, the EITC cannot be claimed, even if income and household size would qualify the taxpayer for the credit. Always double-check tax forms before submitting to the IRS to prevent mistakes that will cost you later.

Who Can HelpSponsored