J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

25.11 Income Tests for Earned Income Credit (EIC)

For purposes of the credit, earned income includes wages, salary, tips, commissions, jury duty pay, union strike benefits, certain disability pensions, and net earnings from self-employment. An election may be made to include combat pay that is otherwise excluded from income (35.4) as earned income for EIC purposes. Apart from such combat pay, nontaxable employee compensation, such as salary deferrals, or excludable dependent care benefits, is not considered when computing the credit.

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Filing Tip

Definition of Earned Income for EIC Purposes

Earned income includes tax free combat pay (35.4), but does not include other nontaxable employee compensation such as salary deferrals and reductions, excludable dependent care benefits, and excludable education assistance.

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Disqualifying income.

For 2012, an individual is not eligible for the earned income credit if he or she has “disqualified income” exceeding $3,200. Disqualified income includes interest (taxable and tax-exempt), dividends, net rent and royalty income, net capital gain income, and net passive income that is not self-employment income.

Credit phases out with income.

There are different phaseout ranges for married couples filing jointly than for taxpayers filing as single, head of household, or qualifying widow(er).

If your filing ...