Table of Contents
The next few pages contain four detailed examples (with a filled-in Schedule EIC and EIC Worksheets) that may be helpful if you have questions about claiming the EIC.
Cynthia and Jerry Grey have two children, Kirk, age 8, and Susanne, age 6. The children lived with Cynthia and Jerry for all of 2010. Cynthia earned wages of $15,000 and Jerry had wages of $10,000. The Greys received $525 in interest on their savings account. They had no other income in 2010.
Cynthia and Jerry have the 2010 Form 1040A and instructions. They want to see if they qualify for the EIC, so they follow the steps in the instructions for lines 41a and 41b.
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Cynthia and Jerry enter their total earned income ($25,000) on line 1.
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To find their credit, they go to the EIC Table (in the Appendix of this publication). The part of the EIC Table used in this example is on the next page. They find their earned income of $25,000 in the range of $25,000 to $25,050. They follow this line across to the column Two children under Married filing jointly and find $4,285. They enter $4,285 on line 2.
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They enter on line 3 their AGI ($25,525) and see that it is different from the amount on line 1.
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They look up $25,525 in the EIC Table and enter the amount of $4,180 on line 5.
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They enter $4,180 on line 6. This is the smaller of the line 2 amount ($4,285) and the line 5 amount ($4,180).
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The Greys enter $4,180 on line 41a of their Form 1040A. They will now complete Schedule EIC (shown on page 33) and attach it to their return. They will keep the EIC Worksheet for their records.
Exerpt from EIC table for Cynthia and Jerry Grey's example.
Sharon Rose is age 63 and retired. She received $7,000 in social security benefits during the year and $7,500 from a part-time job. She also received a taxable pension of $6,400. Sharon had no other income. Her AGI on line 22 of Form 1040A is $13,900 ($7,500 + $6,400).
Sharon is not married and lived alone in the United States for the entire year. She cannot be claimed as a dependent on anyone else's return. She does not have any investment income and does not have a qualifying child.
Sharon reads the steps for eligibility in her Form 1040A instructions. In Step 1 she discovers that, because her AGI ($13,900) is not less than $13,460, she cannot take the EIC. She completes the rest of her Form 1040A and files it with the IRS.
Example 1. Cynthia and Jerry Grey.
Schedule EIC for Cynthia and Jerry's Example.
Steve and Linda Green have two children, Amy, age 8, and Carol, age 10, who lived with them all year.
Steve owns and operates a dairy farm that had a loss of $2,200 in 2010. Steve reports this loss on Schedule F and on Form 1040, line 18. Steve qualifies and chooses to use the optional method to figure net earnings, so he uses Section B of Schedule SE. He enters $4,480 on Schedule SE, Section B, lines 15 and 4b. Steve figures self-employment tax of $686. He deducts one-half of it ($343) on Form 1040, line 27.
Linda had wages of $19,000, which she reports on Form 1040, line 7. She also received advance EIC payments of $1,716, which she reports on Form 1040, line 59. In addition, she and Steve received $200 in interest from a savings account, and $1,500 of their state income tax refund was taxable.
Steve and Linda had a $1,000 gain from the sale of stock and a $3,000 gain from the sale of raised dairy cows they had held for 3 years. They report the $3,000 gain on Form 4797, Sales of Business Property. They do not have any other sales to report on Form 4797, so they enter $3,000 on Form 4797, line 7, and on Schedule D, line 11. (They have no prior year section 1231 losses.) They report their net capital gain of $4,000 ($1,000 + $3,000) from Schedule D on Form 1040, line 13.
The Greens read the instructions for Form 1040, lines 64a and 64b. In Step 2 they figure their investment income to be $4,200 ($200 interest income from Form 1040, line 8a, plus a $4,000 capital gain from Form 1040, line 13). But when they read the second and third questions in Step 2 they find that, because they have figured their investment income to be more than $3,100 and they are filing Form 4797, they must use Worksheet 1 in Publication 596 to see if they can take the EIC.
The Greens fill out Worksheet 1 (shown on page 35) in Publication 596. They find their correct investment income for EIC purposes to be $1,200, not $4,200. This is less than $3,100, so they meet Rule 6. They read the rest of Publication 596 and find that they meet all the rules to claim the EIC. For example, they will file a joint return (Rule 3). Both of their children are qualifying children (Rule 8). Also, their AGI of $22,157 ($19,000 + $4,000 + $200 + $1,500 - $2,200 - $343) is less than $45,373 (Rule 1).
They use EIC Worksheet B (shown on pages 36 and 37) to figure their EIC of $4,685. They also complete Schedule EIC (not shown) and attach it to their Form 1040.
Worksheet 1. Investment Income If You Are Filing Form 1040
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Use this worksheet to figure investment income for the earned income credit when you file Form 1040.
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Greens' EIC Worksheet B, page 1
Greens' EIC Worksheet B, page 2
Victor and Ida Brown have two children, Kevin, age 15, and Ashley, age 14. The children lived with Victor and Ida for all of 2010. Ida earned wages of $10,000 and Victor, a member of the clergy, received a salary of $17,000. Victor also receives a housing allowance of $500 a month ($6,000 a year) from the church. The Browns received $200 in interest on their savings account. They had no other income in 2010.
Victor does not have to pay income tax on his housing allowance but he does have to include it in net earnings from self-employment and pay self-employment tax on it. To figure his self-employment tax, he must complete Schedule SE (Form 1040). He completes Schedule SE and figures self-employment tax of $3,250. He puts this figure on Form 1040, line 56, and deducts $1,625, one-half of his self-employment tax, on Form 1040, line 27.
Victor and Ida read the Form 1040 instructions for lines 64a and 64b, and find that they meet all the rules to claim the EIC. For example, their AGI of $25,575 ($17,000 + $10,000 + $200 - $1,625) is less than $45,373 (Step 1, question 1). Their investment income ($200 interest income from a savings account) is less than $3,100 (Step 2). Both of their children are qualifying children (Step 3, question 1).
Victor and Ida Brown's Worksheet B.
Worksheet B continued for Victor and Ida Brown's example.
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