Make Work Pay

The Earned Income Tax Credit (EITC) sometimes called the Earned Income Credit (EIC), is a refundable federal income tax credit for low-income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a tax return.

The EITC has no effect on certain welfare benefits. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments.

EITC Thresholds and Tax Law Updates Current Tax Year 2007

Earned income and adjusted gross income (AGI) must each be less than:

• $37,783 ($39,783 married filing jointly) with two or more qualifying children;
• $33,241 ($35,241 married filing jointly) with one qualifying child;
• $12,590 ($14,590 married filing jointly) with no qualifying children.

Tax Year 2007 maximum credit:

• $4,716 with two or more qualifying children;
• $2,853 with one qualifying child;
• $428 with no qualifying children.

Investment income must be $2,900 or less for the year.

The maximum Advance Earned Income Tax Credit (AEITC) for TY 2007 the employer is allowed to provide throughout the year with the employee's pay is $1,712.

 Prior Tax Year 2006 Earned income and adjusted gross income (AGI) must each be less than:

• $36,348 ($38,348 married filing jointly) with two or more qualifying children;
• $32,001 ($34,001 married filing jointly) with one qualifying child;
• $12,120 ($14,120 married filing jointly) with no qualifying children.

Tax Year 2006 maximum credit:

• $4,536 with two or more qualifying children;
• $2,747 with one qualifying child;
• $412 with no qualifying children.

Investment income must be $2,800 or less for the year.

The Advance Earned Income Tax Credit (AEITC) for TY 2006 maximum credit the employer is allowed to provide throughout the year with the employees pay is $1,648.

A “Qualifying Child” - A “qualifying child” may enable a taxpayer to claim several tax benefits, such as head of household filing status, the exemption for a dependent, the child tax credit, the child and dependent care credit and the earned income tax credit. Prior to 2005, each of these items defined a qualifying child differently.

Prior Tax Year 2005
Earned income and adjusted gross income (AGI) must each be less than:

• $35,263 ($37,263 married filing jointly) with two or more qualifying children;
• $31,030 ($33,030 married filing jointly) with one qualifying child;
• $11,750 ($13,750 married filing jointly) with no qualifying children.

Tax Year 2005 maximum credit:

• $4,400 with two or more qualifying children;
• $2,662 with one qualifying child;
• $399 with no qualifying children.

Investment income must be $2,700 or less for the year.

The Advance Earned Income Tax Credit (AEITC) for TY 2005 maximum credit the employer is allowed to provide throughout the year with the employees pay is $1,597.

New: Nontaxable combat pay election. You can now elect to have your nontaxable combat pay included in earned income for the earned income credit.

Combat pay, Nontaxable. If you were a member of the U.S. Armed Forces who served in a combat zone, certain pay is excluded from your income. See Combat Zone Exclusion in Pub. 3. You can elect to include this pay in your earned income when figuring the EIC. The amount of your nontaxable combat pay should be shown in Form(s) W-2, box 14, with code Q.

For more information, please visit the IRS page on EITC: http://www.irs.gov/individuals/article/0,,id=96466,00.html