- A refundable credit is a tax credit that reduces a taxpayer's tax liability below zero. The EITC is a refundable credit. When the EITC is greater than the amount of any taxes owed, those who claim the credit will receive a refund.
- In order to qualify for the EITC, a taxpayer must meet certain rules. The taxpayer must have a valid Social Security number, have earned income (unemployment benefits are not considered to be earned income), be a United States citizen or resident alien or married to a United States citizen or resident alien and filing a joint return, and have a qualifying child or meet certain criteria. The criteria for a childless worker are that they must be between the ages of 25 and 65, live in the United States for more than half of the year, and not be the dependent of another taxpayer. The EITC may not be claimed if the taxpayer is using the Married Filing Separately filing status, using forms 2555 or 2555EZ, or the qualifying child of another taxpayer.
- To qualify as a low income taxpayer, the individual's or household's income and adjusted gross income must be lower than a specified amount. This amount changes often, and as of 2008 the limitations are as follows: under $12,880, $15,880 if married filing jointly, for childless taxpayers, under $33,995, $36,995 married filing jointly, for taxpayers that have one qualifying child, and under $38,646, $41,646 if married filing jointly, for taxpayers that have two or more qualifying children.
- The amount of the credit is determined by how much the taxpayer's income was and how many qualifying children the taxpayer has. In 2008, the maximum EITC is $438 for taxpayers with no qualifying children, $2,917 for taxpayers that have one qualifying child, and $4,824 for taxpayers that have two or more qualifying children.
- When claiming the EITC, the taxpayer may either figure their own credit or have the IRS figure it for them. There is an EIC worksheet in the instructions for forms 1040, 1040A and 1040EZ that can be used to figure the credit. After the credit has been figured, the amount can be entered on the appropriate line of the tax form. If the taxpayer has a qualifying child, Schedule EIC must be affixed to the return. To have the IRS figure the credit, write "EIC" next to line 64a on form 1040, next to line 40a on form 1040A, or next to line 8a on form 1040EZ, complete the rest of the return, and send it to the IRS.
- A taxpayer who is eligible to claim the EITC, may elect to receive advance EIC payments as part of their paychecks rather than waiting until the next year when they file their return. To do this, a taxpayer can complete form W-5 and return it to their employer. Advance EIC payments must be reported on the tax return for the year they are received. Only a part of the estimated EITC will be distributed in advance payments, the rest can be claimed when the tax return is filed.
