Frequently Asked Questions: Earned Income Tax Credit

Q: What is the earned income tax credit, and how do I know if I qualify?

A: The earned income tax credit (EITC) is a refundable credit. (A refundable credit is a tax credit that you may use to generate a refund even if you have no tax liability.) The EITC is available to certain individuals and families who have low to moderate levels of earned income (from wages, salaries, tips, bonuses and/or net earnings from self-employment) and are taking care of at least one child and up to three qualified children. In certain cases, a taxpayer with low earned income and no children may also qualify.

The IRS has a variety of tools available to see if you qualify. You can access them at the IRS EITC Home Page.

Q: Who is eligible for the earned income tax credit when both a child and a grandchild live with the grandparents of the grandchild?

A: A qualifying child for the earned income tax credit (EITC) must meet three tests: age, relationship and residency. Your son or daughter or lineal descendant of your son or daughter passes the first two tests if he/she is either under age 19 or under age 24 and a full-time student. The qualifying child must also reside with you in your home for more than six months of the year. Temporary absences for illness or school are OK.

It is possible, under the living conditions you describe, that the child is the qualifying child of both the parent and the grandparent. In such cases, either the parent or the grandparent can treat that child as their qualifying child as long as the grandparent has a higher adjusted gross income (AGI) than the parent. If the parent's AGI is higher, then only the parent may treat the child as a qualifying child. Once the determination is made as to who may treat the child as a qualifying child, it is that person who can claim the EITC, assuming that all the other rules for the EITC are met.

Also, please note that once it is determined which taxpayer has the qualifying child, the other taxpayer is not entitled to any other tax benefit for that child.

Q: Do I have to include the child support payments and alimony I receive in income when I compute the earned income tax credit?

A: Child support payments and alimony are not included as earned income, nor are they considered investment income, for purposes of eligibility for the earned income tax credit (EITC). Child support payments are also not included in adjusted gross income. However, alimony payments are included in adjusted gross income and will affect the amount of EITC you receive.

Q: Last tax season, someone claimed my dependents, and I did not send in information to prove I should claim them. Would this affect me getting the earned income credit this year?

A: No. Your eligibility for the earned income tax credit (EITC) for any given year is based on the set of facts for that particular.year. If you have a qualifying child, your earnings and adjusted gross income are within the requisite limits, and everyone has a Social Security number, you would qualify for the EITC regardless of how you filed in a prior year.

Through the AARP Foundation Tax-Aide program, AARP Foundation is providing online tax counseling as a public service, and cannot guarantee the accuracy of the information provided. Your taxes are your responsibility. You are solely responsible for what you do in your own tax situation.