Part D. Figuring and Claiming the EIC(p245)

Read this part if you have met all the rules in Parts A and B, or all the rules in Parts A and C.

Part D discusses Rule 15. You must meet this rule, in addition to the rules in Parts A and B, or Parts A and C, to qualify for the earned income credit.

This part of the chapter also explains how to figure the amount of your credit. You have two choices.

1. Have the IRS figure the EIC for you. If you want to do this, see IRS Will Figure the EIC for You.
2. Figure the EIC yourself. If you want to do this, see How To Figure the EIC Yourself.

• $38,646 ($41,646 for married filing jointly) if you have more than one qualifying child,
• $33,995 ($36,995 for married filing jointly) if you have one qualifying child, or
• $12,880 ($15,880 for married filing jointly) if you do not have a qualifying child.

Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Earned income is explained in detail in Rule 7.

If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions.

Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 40a and 40b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b.

When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). You will then reduce that amount by any amount included on that line and described in the following list.

• Scholarship or fellowship grants not reported on a Form W-2. A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit.
• Inmates. Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. This includes amounts received for work performed while in a work release program or while in a halfway house. If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put "PRI" and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ).
• Deferred compensation plans. A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put "DFC" and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). This amount may be reported in box 11 of your Form W-2. If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity.

If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also reported on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b. Put "Clergy" on the dotted line next to line 64a (Form 1040).

A church employee means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. If you received wages as a church employee and included any amount on both line 5a of Schedule SE and line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b.

The IRS will figure your EIC for you if you follow the steps explained in this section.

If you file Form 1040 and want the IRS to figure your credit for you, follow these steps.

1. Put "EIC" on the dotted line next to line 64a. Then, if you have any of the types of income described earlier under Inmates, Deferred compensation plans, or Clergy, follow the instructions given there.
2. If you received nontaxable combat pay and are electing to include it in your earned income for the EIC, enter the amount on line 64b. For details, see Nontaxable combat pay election in Rule 7.
3. Complete all other parts of your return that apply to you (including line 60), but do not fill in lines 71, 72, 73a, and 75. If you do not have a qualifying child, stop here.
4. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

If you file Form 1040A and want the IRS to figure your credit for you, follow these steps.

1. Put "EIC" to the left of the entry space for line 40a. Then, if you have any of the types of income described earlier under Inmates or Deferred compensation plans, follow the instructions given there.
2. If you received nontaxable combat pay and are electing to include it in your earned income for the EIC, enter the amount on line 40b. For details, see Nontaxable combat pay election in Rule 7.
3. Complete all other parts of your return that apply to you (including line 36), but do not fill in lines 43, 44, 45a, and 47. If you do not have a qualifying child, stop here.
4. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

If you file Form 1040EZ and want the IRS to figure your credit for you, follow these steps.

1. Put "EIC" in the space to the left of line 8a. Then if you have any of the types of income described earlier under Inmates or Deferred compensation plans, follow the instructions given there.
2. If you received nontaxable combat pay and are electing to include it in your earned income for the EIC, enter the amount on line 8b. For details, see Nontaxable combat pay election in Rule 7.
3. Complete all other parts of your return that apply to you, but do not fill in lines 10, 12a, or 13.

To figure the EIC yourself, use the EIC Worksheet in the instructions for the form you are using (Form 1040, Form 1040A, or Form 1040EZ).

If you file Form 1040 and want to figure the credit yourself, follow these steps.

1. Go to your form instruction booklet and turn to the instructions for lines 64a and 64b, and look for Worksheet A or Worksheet B.
2. Complete the EIC Worksheet that applies to your situation according to its instructions. Complete Worksheet B if you were self-employed, a member of the clergy or a church employee who files Schedule SE, or a statutory employee filing Schedule C or C-EZ. Find the amount of your credit in the EIC Table in your instruction booklet.
3. Enter the amount of your earned income credit from Worksheet A or B on Form 1040, line 64a.
4. Keep the EIC Worksheet for your records. Do not attach it to your income tax return. If you do not have a qualifying child, stop here.
5. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

If you file Form 1040A and want to figure the credit yourself, follow these steps.

1. Go to your form instruction booklet and turn to the instructions for lines 40a and 40b, and look for the EIC Worksheet.
2. Complete the EIC Worksheet according to its instructions. Find the amount of your credit in the EIC Table in your form instruction booklet.
3. Enter the amount of your earned income credit from line 6 of the EIC Worksheet on Form 1040A, line 40a.
4. Keep the EIC Worksheet for your records. Do not attach it to your income tax return. If you do not have a qualifying child, stop here.
5. If you have a qualifying child, complete Schedule EIC according to its instructions. Be sure to enter the child's social security number on line 2 of that schedule. If you do not, your credit may be reduced or disallowed. Attach Schedule EIC to your return.

If you file Form 1040EZ and want to figure the credit yourself, follow these steps.

1. Go to your form instruction booklet and turn to the instructions for lines 8a and 8b and look for the EIC Worksheet.
2. Complete the EIC Worksheet according to its instructions. Find the amount of your credit in the EIC Table in your form instruction booklet.
3. Enter the amount of your earned income credit from line 6 of the EIC Worksheet on Form 1040EZ, line 8a.
4. Keep the EIC Worksheet for your records. Do not attach it to your income tax return.