It’s Your Money Column – Earned Income Tax Credit

If your income has dropped recently, you may be eligible for the Earned Income Tax Credit. The EITC is an income tax credit for working individuals and families that reduces the tax that you owe, dollar for dollar. If you qualify and if the credit is larger than the tax you owe, you will receive a refund.

To qualify, you must have earned income during the year. Your earned income and modified adjusted gross income (computed on your tax form) must be less than $32,121 if you have more than one qualifying child, $28,281 if you have one qualifying child and $10,710 if you have no qualifying children. Your investment income cannot be more than $2,450. You can select any filing status except "married filing separate returns."

Qualifying children are sons, daughters, adopted children, grandchildren, great-grand-children, stepchildren or eligible foster children under the age of 19 at the end of 2001 or younger than 24 and a full-time student. Children who are permanently and totally disabled at any age during the year also qualify. The child must have lived with you in the United States for more than half the year.

Earned income includes money that you earn by working for someone who pays you or income that you receive from a business that you own.

You can figure your credit by filling out the worksheet included in the EITC instructions with forms 1040, 1040A, and 1040EZ. If you would like help figuring the credit, call the IRS at 1-800-829-1049 and ask how to get in touch with a volunteer from the Volunteer Income Tax Assistance site.

If you expect that you will qualify for the EITC in 2002 and have at least one qualifying child, you could receive part of this credit with your paycheck during 2002. Your employer can provide you with Form W-5. Answer the five questions, and if you find that you qualify, give the form to your employer. This means that you expect your 2002 income to be lower than approximately $29,000. If you qualify, you could receive up to $1,503 with your paychecks. You cannot receive the advance payments if you are self-employed.

You can get more information about the EITC from IRS Publication 596. A copy is free by calling 1-800-829-3676.