WHAT IS THE EARNED INCOME TAX CREDIT OR EIC?

The Earned Income Tax Credit (EIC or EITC) is a federal income tax credit or benefit for eligible working people who earn low or moderate incomes. It has several important purposes: to reduce the tax burden on these workers, to supplement wages, and to make work more attractive than welfare. The credit reduced the amoutn of tax an individual owe, and may be returned in the form of a refund.

Workers who qualify for the EITC and file a federal tax return can get back some or all of the federal income tax that was taken out of their pay during the year. They may also get extra cash back from the IRS. Even workers whose earnings are too small to have paid taxes can get the EITC. What's more, the EITC reduces any additional taxes workers may owe, such as payroll taxes.

WHO CAN GET THE EITC AND HOW MUCH IS IT WORTH FOR INCOME EARNED IN 2006?

Single or married people who worked full time or part time at some point in 2006, and have a valid Social Security Number (Individual Taxpayer Identification Numbers (ITINs) do not qualify) can qualify for the EITC, depending on their income. Taxpayers with Individual Taxpayer Identification Numbers (ITINs) do not qualify for this tax credit.

The following qualify:

Workers who were raising one child in their home and had family income of less than $32,001 (or $34,001 for married workers) in 2006 can get an EITC of up to $2,747.

Workers who were raising two or more children in their home and had family income of less than $36,348 (or $38,348 for married workers) in 2006 can get an EITC of up to $4,536.

Workers who were not raising children in their home but were between ages 25 and 64 on December 31, 2006, and had income below $12,120 (or $14,120 for married workers) can get an EITC of up to $412.

To assist you with all of the Earned Income Tax Credit rules, please view the EITC qualifying checklist for the 2006 tax year. Click here for the checklist (you must have adobe reader to display).

See below under "EITC Assistant" if you would like to estimate the amount of your 2006 EIC.

WHICH CHILDREN QUALITY FOR THE EITC?

"Qualifying children" include: sons, daughters, stepchildren, grandchildren and adopted children. Brothers, sisters, stepbrothers or stepsisters -- as well as descendants of such relatives -- if they were cared for as members of the family.

Other children may qualify as foster children, but only if they are placed with the worker by an authorized government or private placement agency.

"Qualifying children" must be under age 19 or under age 24 if they are full-time students. They must live with the worker for more than half of the year. (As of 2002, a full-year is no longer required for foster children.) Totally and permanently disabled children of any age also are considered "qualifying children."

Valid Social Security numbers are required for qualifying children born before December 31, 2006.

HOW DO YOU GET THE EITC?

Workers raising children in 2006 must file either Form 1040 or 1040A and must fill out and attach Schedule EIC. Workers with children cannot get the EITC if they file Form 104OEZ or fail to attach Schedule EIC. Married workers must file a joint return to get the EITC.

Workers who were not raising children in 2006 can file any tax form - including the 104OEZ. These workers write "EITC" (or the dollar amount of their credit) on the Earned Income Credit line on the tax form. They do not file Schedule EIC.

A correct name and Social Security number must be provided for every person listed on the tax return and Schedule EIC. If this information is incorrect or missing, the IRS will delay the refund.

EITC ASSISTANT

Workers don't have to calculate their own EITC; if they choose, the IRS will do it for them!

Find out if you are eligible for the Earned Income Tax Credit (EITC) by answering a few simple questions and providing basic income information. Click on the following link to go to the EITC assistant: http://www.irs.gov/individuals/article/0,,id=130102,00.html . You can choose to have the questions asked in either English or Spanish. After you select the language, you will be asked a series of questions to assist you in determining your correct filing status, determining whether your child(ren) meets the tests for a qualifying child and estimate the amount of credit that you may receive.

WORKERS CAN GET FREE HELP FILING THEIR TAX FORMS

Many families that apply for the EITC pay someone to complete their tax forms. This can cost $150 or more. Getting a "quick tax refund" that comes back in a few days costs even more. Paying for tax preparation takes away from the value of the EITC. Low-income workers can get free help with tax preparation through the Free Tax Preparation Sites operated by VITA or TCE (opening in late January of 2007).

DOES THE EITC AFFECT PUBLIC BENEFITS?

In most cases, the EITC does not affect eligibility for benefits likecash assistance ("welfare"), Medicaid, Food Stamps, SSI, or public or subsidized housing.

CAN IMMIGRANT WORKERS GET THE EITC?

Many legal immigrants can qualify for the EITC, as long as they meet the eligibility requirements and have a valid Social Security Number. Taxpayers with an Individual Taxpayer Identification Number (ITIN) do not qualify for the EITC.

THE RISKS AND COSTS OF TAX REFUND ANTICIPATION LOANS

Don't pay to borrow your own money - The "tax refund" that some tax preparers offer to pay you in advance really isn't one:

DON'T PAY TRIPLE-DIGIT INTEREST RATES TO BORROW YOUR OWN REFUND!

For more information on the risks and cost of RALs, click the following link:

http://access.nku.edu/litc/taxrefundloans.htm