Earned Income Credit

The earned income credit is a tax incentive for lower-income workers to stay in the workforce. It's a refundable credit, which means that if your credit is larger than your tax, the IRS will refund you the difference.

To qualify for the earned income credit for 2006, your earned income (wages and self-employment income) AND modified adjusted gross income must both be below these cutoffs:

Married filing a joint return:

$38,348, if you have two or more qualifying children (dependents, usually—details below).
$34,001, if you have one qualifying child.
$14,120, if you have no qualifying children.

Single or head of household:

$36,348, if you have two or more qualifying children (dependents, usually—details below).
$32,001, if you have one qualifying child.
$12,120, if you have no qualifying children.

Other requirements are:

You are not married filing a separate return.
Your tax return reports investment income of $2,800 or less.
Neither you nor your spouse can be claimed as someone else's qualifying child.

If you have no qualifying children, there are additional requirements:

Either you or your spouse were at least age 25 and under age 65 at the end of 2006.
Neither you nor your spouse could be claimed as someone else's dependent in 2006.
You or your spouse lived in the U.S. for more than half of 2006.

To be your qualifying child, the child must meet all of these tests:

At the end of 2006, the child was under age 19, a full-time student under age 24, or disabled.
The child is your child, grandchild, or foster child.
The child lived with you in the U.S. for more than half of 2006.
The child is not the qualifying child of a higher income person.

If you qualify, the amount of your earned income credit depends upon your income. The earned income credit increases with your income up to a point, then levels off. As your income approaches the cutoff points given above, the credit is phased out.

Our earned income credit topic will take you through all the qualifying tests so we can calculate the correct credit for your situation.