Taxpayers who work, but have low incomes, are entitled to a special tax credit known as the Earned Income Credit. This credit is essentially an incentive for low income taxpayers to continue working, and is second only to Medicaid in the amount of assistance it provides to low income families. The earned income credit amount is dependent on income, filing status and dependents, and is refundable if the credit amount exceeds taxes owed by the taxpayer.

In 2014, employed taxpayers who met the low to moderate income guidelines are eligible for a credit worth up to $6,143. The credit amount is figured by taking into account a few factors such as adjusted gross income, earned income, and the number of qualifying children counted on the return. To receive the credit, the taxpayer must have earned income from an employer, or be self-employed.

What are the Rules for Qualifying Child?

If you have no qualifying children, you may still be eligible for the Earned Income Credit. One child will get you a larger credit, while two or more can increase the credit amount even more. A qualifying child is considered one who meets the following conditions:

• Meet the guidelines defined in the dependency exemption
• Is under 19 years old, or under 24 if a full time student or permanently disabled
• Reside with the taxpayer for more than 50% of the year
• Still qualify as a dependent, despite being married by the close of the tax year
• Is a United States citizen or resident

What are the Rules for Income and Filing Status?

Earned income is determined by the total of wages, salaries, tips, commissions, pay received for jury duty, some disability pensions, net earnings from self-employment, union strike benefits, and certain military allowances. Those in the military can opt to include tax-free combat pay as earned income for the purposes of the tax credit. Earned income does not include any employee compensation which is untaxed, like salary deferrals, fringe benefits, or 401k contributions. If the taxpayer’s adjusted gross income is higher than the limit, the credit is either reduced or eliminated entirely.

Married couples must file a joint return in order to claim the Earned Income Credit, unless the spouse didn’t live in the same household as the taxpayer for the final six months of the year. In these situations, the spouse that can claim head of household, or the one who paid the expenses for the home in which a qualifying child was present, is eligible for the Earned Income Credit.