Wiley Tax Preparer: A Guide to Form 1040

CHAPTER 27

Earned Income Credit

The earned income credit (EIC) is a tax credit for certain working individuals with earned income below a threshold amount. The credit reduces tax liability. The EIC is refundable when the amount of the credit exceeds the tax owed for the year. The amount of the EIC depends on the taxpayer's income and the number of qualifying children, if any.

From your perspective as a preparer, you must recognize that the EIC is one of the most frequently miscalculated credits, and the IRS looks closely at this tax credit. You must exercise due diligence in determining a taxpayer's eligibility for the credit and in figuring the credit amount, as the IRS can hold you personally liable for a penalty for each failure.

The IRS will figure a taxpayer's EIC under certain conditions. These rules are not covered here because you, as the preparer, are responsible for accurately figuring and claiming the EIC, when appropriate, for every tax return you prepare.

TIP: A taxpayer must file a return if he or she wishes to claim the EIC, even if income is below the filing threshold for the taxpayer's filing status, there was no tax withheld from the taxpayer's wages, or the taxpayer did not owe any tax (see Chapter 1).

Overview of the Earned Income Credit

A taxpayer who works at a job or business may be entitled to the earned income credit (EIC), even if the credit is more ...