How To Get A Low Income Tax Credit

A low income tax credit is available to individuals and families that meet the requirements for the tax credit. The low income tax credit is commonly referred to as the earned income tax credit. The credit is a maximum $3,043 for claimants with 1 qualifying child for 2009 and the maximum credit is $5,657. A qualifying child is any dependent child living with a parent up to age 18 or if attending a full-time student, age 23. A qualifying child who is permanently and totally disabled is considered a dependent, regardless of age.

History of Earned Income Tax Credit

The EIC program is the largest anti-poverty program in the United States, providing over $35 billion in support to low-income families. The program was enacted in 1975 and expanded several times between 1986 and 2001. The program is administered on the federal level and nearly half of the states have enacted corresponding state level programs, including the District of Columbia. Because EIC is a tax credit, it helps a low-income person lower their taxable income, as well as provide assistance for meeting their basic needs.  

EIC Eligibility

To be eligible for the earned income tax credit in 2009, a parent’s income for 1 up to 3 or more qualifying children cannot exceed the plateau amount of $16,420 in order to receive the maximum credit. Marginal income that exceeds the plateau income level phases out the credit at a rate of 21.06 percent for 2 or more children and 15.98 percent for 1 child. Once a parent’s income reaches a minimum of $35,463 to $43,279, the credit is completely phased out.

An applicant that meets the income qualification for the earned income tax credit with 1 or more qualifying dependent children must file an income tax return. This is required even if the qualifier does not meet the income requirement to file a return or have to pay taxes. Additionally, an EIC applicant must have a valid social security number or other identifying number, such as what may be issued by the Immigration and Naturalization Service (INS).

Individuals without Qualifying Children

Individuals without qualifying children but are within the income thresholds may apply for EIC.  In order to do so, such an individual must be at least age 25 (but not older than 65), reside in the United States at least 6 months and not be considered a dependent on another taxpayer’s tax return.  

Form W-5

A person requesting EIC payments must file a Form W-5, Earned Income Credit Advance Payment Certificate with their employer, along with the Form W-4 backup withholding information. The Form W-5 is used by an employer to determine the amount of EIC the employee is entitled to, which is paid in advance of the April 15th annual tax filing period.  In additional to the W-5, an employee must attach Schedule EIC and provide qualifying child information with the Form 1040 or 1040A filing (for taxpayers that itemize tax deductions; taxpayers filing the Form 1040EZ do not need to file the Schedule EIC).

IRS Publication 596, Earned Income Credit – Information for use in Preparing Tax Returns and Claiming the EITC, provides information on the EIC program. The booklet can be downloaded as a PDF file from the website and is a useful guide in answering any questions you may have about the EIC program.