Earned Income Credit

Auburn, Jan. 22, 2003---The federal government has a plan to put extra money in the pockets of workers. The plan is called the Earned Income Credit (EIC). It is a tax credit that can provide up to $4,140 in added income.

"This year adjusted gross income rather than modified adjusted gross income will be used to determine one's income eligibility, says Barbara Mobley, an Extension financial management specialist. Non-taxable income such as that contributed to qualified retirement plans is not included in adjusted gross income.

Families with two or more qualifying children and an adjusted gross income of up to $33,178 or $34,178 if married filing jointly, may be eligible for up to $4,140. This maximum amount is paid to those with incomes between $10,350 and $13,550 or $14,550 if filing jointly.

Lesser amounts are paid to those with incomes on either side of this range, Mobley says.

Families with only one qualifying child and an adjusted gross income of up to $29,20l, or $30,209 if married filing jointly, may be eligible for up to $2,506. This maximum amount is paid to those with incomes between $7,350 and $13,550, or $14,550 if filing jointly. Lesser amounts are paid to the rest.

A qualifying child may the taxpayers natural child, grandchild, stepchild, adopted child, foster child or sibling if cared for as their child. A qualifying child but be under age 19, or under age 24 if a full-time student, or any age if totally and permanently diabled. A child does not have to be the taxpayers dependent but must have lived with the taxpayer in the United Stated for more than half of 2002.

Among divorced parents, either parent but ONLY one parent can claim a qualifying child. Several qualifying children may be divided between parents by agreement. In cases of joint custody when the parents cannot agree, the parent with whom the child lived the longest during the year or, if that is equal, the parent with the highest adjusted gross income can claim the child.

Workers between ages 25 and 64 with no qualifying children but with an adjusted gross income of up to $11,060 or $12,060 if married filing jointly, could be eligible for up to $376.

"There are other requirements," Mobley says, including:

Earned income must be derived from wages, salaries, tips or self-employment
A 2002 income tax return must be filed to receive the credit. The Internal Revenue Service, as well as local community volunteers and paid tax preparers, can help tax payers figure the credit
Investment income cannot exceed $2,550 and individuals cannot file Form 2555, 2555EZ or Foreign Earned Income
Individuals must be a U.S. citizen or resident alien for the entire year
Any qualifying children must have a valid Social Security number

Filing for and receiving the Earned Income Credit has no effect on certain welfare benefits, including food stamps, low-income housing, supplemental security income and Medicaid. Temporary assistance to needy families (TANF) benefits may be affected.

Taxpayers eligible for the EIC in 2003, may file Form W-5 with their employer to receive EIC payments in advance. They should ask their employers for the form.

Call toll free 1-800-829-4477 and request topic number 601 to hear a recording explaining EIC. To request income tax forms and instructions, including publications 596, Earned Income Credit and Schedule EIC, call 1-800-829-3676.

To ask IRS questions regarding tax returns and filing for EIC, call 1-800-829-1040.

(SOURCE: Barbara Mobley, Extension Financial Management Specialist, Alabama Cooperative Extension System, (334) 844-2225)

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