Earned Income Credit(p11)

The earned income credit is a credit for certain people who work. If you qualify for it, the earned income credit reduces the tax you owe. Even if you do not owe tax, you can get a refund of the credit. Also, you may be able to get part of the credit added to your wages or salary instead of waiting until after the end of the year.

You cannot take the credit if your earned income (or adjusted gross income) is:

• $13,440 or more ($18,440 or more if married filing jointly) and you do not have a qualifying child,
• $35,463 or more ($40,463 or more if married filing jointly) and you have one qualifying child,
• $40,295 or more ($45,295 or more if married filing jointly) and you have two qualifying children, or
• $43,279 or more ($48,279 if married filing jointly) and you have three or more qualifying children.

Earned income includes your:

• Wages, salaries, tips, and
• Net earnings from self-employment minus the amount you claimed (or should have claimed) on Form 1040, line 27, for one-half of your SE tax.

If you have earnings from qualified services that are exempt from SECA (because you have an approved Form 4361), amounts you received for performing ministerial duties as an employee are earned income. This includes wages, salaries, tips, and other taxable employee compensation.

Amounts you received for nonemployee ministerial duties are not earned income. This includes fees for performing marriages and baptisms, and honoraria for delivering speeches.

If you had nonministerial duties, any net earnings from self-employment, minus one-half of your SE tax, and any compensation received as an employee is earned income.

Earned income includes your net earnings from self-employment plus any compensation you received for nonministerial duties minus your Form 1040, line 27, amount for one-half of SE tax.

Your net earnings from self-employment include those net earnings from qualified services. See Self-Employment Tax: Figuring Net Earnings, earlier. Net earnings also include net earnings from self-employment related to nonministerial duties.

If you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation are earned income. Amounts you received as a self-employed individual are not earned income. Also, in figuring earned income, losses from Schedules C, C-EZ, or F cannot be subtracted from wages on Form 1040, line 7.

For detailed rules on this credit, see Publication 596. To figure the amount of your credit, you can either fill out a worksheet or have the IRS compute the credit for you. You may need to complete Schedule EIC and attach it to your tax return. For details on getting part of the credit added to your wages or salary, get Form W-5, Earned Income Credit Advance Payment Certificate, from your employer or the IRS.