Other Requirements
Investment income cannot be greater than $3,150 in 2011, $3,200 in 2012.
A claimant must be either a United States citizen or resident alien. In the case of married filing jointly where one spouse is and one isn't, the couple can elect to treat the nonresident spouse as resident and have their entire worldwide income subject to U.S. tax, and will then be eligible for EIC.
Filers both with and without qualifying children must have lived in the 50 states and/or District of Columbia of the United States for more than half the tax year (six months and one day). Puerto Rico, American Samoa, the Northern Mariana Islands, and other U.S. territories do not count in this regard. However, a person on extended military duty is considered to have met this requirement for the period of the duty served.
Filers who are not claiming a qualifying child must be between the ages of 25 and 64 inclusive. For a married couple without a qualifying child, only one spouse must be within this age range. For a single person with a qualify child, there is no age requirement per se other than the requirement that the single person not himself or herself be claimable as another relative's qualifying child (see Age section above). A married couple with at least one qualifying child is only occasionally classified as claimable by another relative, especially if the married couple has earned income and elects to claim EIC.
All filers and all children being claimed must have a valid social security number. This includes social security cards printed with "Valid for work only with INS authorization" or "Valid for work only with DHS authorization."
Single, Head of Household, Qualifying Widow(er), and Married Filing Jointly are all equally valid filing statuses for EIC. In fact, depending on the income of both spouses, Married Filing Jointly can be advantageous in some circumstances because, in 2009, the phase-out for MFJ for begins at $21,450 whereas phase-out begins at $16,450 for the other filing statuses. A couple who is legally married can file MFJ even if they lived apart the entire year and even if they shared no revenues or expenses for the year, as long as both spouses agree. However, if both spouses do not agree, or if there are other circumstances such as domestic violence, a spouse who lived apart with children for the last six months of the year and who meets other requirements can file as Head of Household. Or, for a couple that is split up but still legally married, they might consider visiting an accountant at separate times and perhaps even signing a joint return on separate visits. There is even an IRS form that can be used to request direct deposit into up to three separate accounts. In addition, if a person obtains a divorce by December 31, that will carry, since it is marital status on the last day of the year that controls for tax purposes. In addition, if a person is "legally separated" according to state law by December 31, that will also carry. The only disqualifying filing status for purposes of the EIC is married filing separately.
EIC phases out by the greater of earned income or adjusted gross income.
A married couple in 2010, whose total income was just shy of $21,500, but who had more than $3,100 of investment income, would have received the maximum credit for their number of qualifying children, but because of the rule that for any claimant—whether single of married, with or without children—that investment income cannot be greater than $3,100, will instead receive zero EIC. This is an edge case, but there are income ranges and situations in which an increase of investment dollars can result in a loss of after-tax dollars. (Instead of $21,500, the phase-out for Single, Head of Household, and Qualifying Widow(er) begins at $16,450.)
In normal circumstances, EIC phases out relatively slowly, at 16% or 21% depending on the number of children.
Read more about this topic: Earned Income Tax Credit