Earned Income Tax Credit (EITC)

What is the EITC?

The Earned Income Tax Credit, EITC or EIC, is a credit that can be claimed by working people with low to moderate income. To qualify, you must file a tax return and meet certain requirements. If you qualify, the EITC reduces the amount of tax you owe or may increase your refund.

Basic Qualifications

If you are claiming the EITC, you must:

• Have a Social Security number that is valid for employment, and issued before the tax return due date;
• Have earned income;
• Not file Form 2555 or Form 2555-EZ;
• Meet the income and investment income limits, which change every year;
• Not be the qualifying child of another person; and,
• Generally, be a United States citizen or resident alien for the entire year.

Special rules apply for members of the military on extended duty outside the United States. For information about these rules, please visit the IRS website at www.irs.gov, or consult with a professional and trustworthy tax preparer.

Qualifying Children

To claim EITC with a qualifying child, the qualifying child must pass ALL of the following tests:

Relationship: A son or daughter (including an adopted child), stepchild, foster child placed by an authorized placement agency or court, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them. Please note that a stepchild can be claimed only if you are married to the legal custodian of the child.

Age: At the end of the filing year, the child was younger than you (or than your spouse if married filing jointly) and younger than 19; younger than 24 and a full-time student; or any age if the child is permanently and totally disabled.

Residency: The child must live with you (or your spouse if filing a joint return) in the United States for more than half of the year.

Joint Return: The child cannot have filed a joint return unless the child and the child's spouse did not have a filing requirement and filed only to claim a refund.

Errors on Your EITC Claim

You are responsible for what is on your return, even when someone else prepares your return for you. Filing a tax return with an error on your EITC claim can delay the EITC part of your refund until the error is corrected or can cause the IRS to deny all or part of your EITC. If the IRS denies all or a part of EITC, you will have to pay back the amount of EITC paid to you in error, plus interest. If you want to claim the EITC again, you will need to file Form 8862, Information to Claim Earned Income Credit after Disallowance, next time you file your federal tax return.

If You are Audited by the IRS

If you receive a letter or notice in the mail from the IRS stating that you are being audited and that your EITC claim has been denied, you should respond to the IRS audit within the time period given on the notice.

If the audit is based on the qualifying child that you claimed, the IRS usually requires that you substantiate your EITC claim by providing documents to prove that the qualifying child that you claimed meets the Relationship, Residency, and Age tests for the tax year at issue.

If the audit is based on income that you did not report on your returns, and it placed you over the IRS Earned Income and Adjustable Gross Income limits, there is a chance that you might have to pay the IRS back.

SOUTH CAROLINA LEGAL SERVICES' LOW INCOME TAXPAYER CLINIC ASSISTS TAXPAYERS WHO ARE BEING AUDITED BY THE IRS.