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Questions and Answers About the EITC

People often have questions about whether they can qualify for the EIC or CTC. This section provides the answers to many commonly asked questions, including questions about how the credits affect public benefits, college aid, eligibility for non-traditional families, military families and immigrants, as well as how to claim the credits for past tax years.

Tax Credits and Public Benefits

Can people who work and also get cash assistance still get the EIC or CTC?

Yes. As long as they earn wages and meet the income and other eligibility requirements for the credits.  Cash assistance benefits are not considered in determining eligibility for tax credits.

·     Workfare programs. Some welfare recipients are required to participate in “work experience” and “community service programs” (often called “workfare”) in exchange for their cash assistance benefits. These benefits are not counted as income to determine eligibility for the EIC or CTC.

·     Subsidized jobs.  Current or former recipients who are employed in jobs for which employers are subsidized through state welfare block grants or other government programs do earn wages that count in determining eligibility for the EIC and CTC.

Will getting the EIC or CTC lower other government benefits? Could someone lose benefits altogether?

Generally, no. Under federal rules, the EIC (including Advance EIC payments) and CTC are not counted as income for Medicaid, food stamps, SSI or federally assisted housing programs.

Welfare cash assistance programs are administered by states under a block grant called Temporary Assistance for Needy Families (TANF). Each state can set its own rules for how the EIC will be treated in determining eligibility for cash assistance. Currently no state counts the EIC refund as income in determining eligibility, except that in Connecticut, under some circumstances, Advance EIC payments may affect a worker’s TANF eligibility.  However, under federal law, states may not count the CTC as income in determining eligibility for cash assistance.

Rules on how the EIC or CTC may affect “General Assistance” benefits are different in each state where a general assistance program is in place. Contact your state or local welfare agency for information.

However, if kept in savings, EIC and CTC refunds can count as resources in determining eligibility for some benefit programs. Often, if the recipient has few or no other resources, saving part of a tax credit refund is not enough to cause that recipient to exceed the resource limit for a benefit program. The rule for most state TANF programs is that the EIC and/or CTC refund must be spent by the end of the month after the month in which it is received or it can count against the dollar limit on resources. However, some states may have adopted less restrictive policies. Contact your state welfare agency for the rule in your state.

For Medicaid, if your state has a resource limit, the EIC and CTC are treated the same as for TANF. Most states have no resource limit for the State Children’s Health Insurance Program (SCHIP) and none count the EIC toward SCHIP resource limits.

For SSI, the EIC and CTC do not count toward the resource limits for nine months after the refund is received.  The EIC and CTC are treated differently for food stamps: the EIC does not count as a resource in food stamps for 12 months after the refund is received, but CTC refunds are excluded only for the month the refund is received and the following month.

Safe harbor.  Deposits in certain types of Individual Development Accounts (IDAs), which may include a worker’s EIC or CTC refund, do not count as a resource in determining eligibility for the above programs or for state cash assistance programs. For more information see the “2002 Federal IDA Briefing Book”.

 

How to Claim Tax Credits for Back Years

What if a worker was eligible for the EIC or CTC in past years but didn’t claim it?

Workers can file for tax credit refunds for the last three years (i.e. 2004, 2005, 2006).

  • Workers who did not file a return for a previous year and discover they had been eligible for the EIC or CTC must file a separate return for each year in which they qualified.

Workers claiming a child for a previous year must attach the Schedule EIC and/or Form 8812 in effect for that year.  Prior-year tax forms and instructions can be obtained at www.irs.gov/formspubs or by calling 1-800-TAX-FORM.

What happens if a worker files for a prior year and the IRS finds out that taxes are owed?

The worker must pay whatever is owed. But:

  • His or her EIC or CTC may be enough to cover the taxes owed.

  • There is no late filing penalty, unless the worker owed income tax in the prior year. Any tax still owed the IRS will be deducted from the worker’s refund.

  • The IRS is usually willing to work out payment plans for back taxes.

  • The worker may be able to make an “offer in compromise” that is less than the tax bill.

 

Other Filing Questions

Will the IRS require additional information beyond what a worker provides with his or her tax return?

Generally, the IRS will not require any additional information. But, if information provided on the tax return or Schedule EIC seems questionable, the IRS may request additional documentation to verify the EIC or CTC claim. In such cases, the IRS will send the filer a questionnaire that specifies the type of documentation that must be submitted.

Filers claiming the EIC and CTC should not mail in any additional documentation with their tax returns unless such documentation is specifically requested by IRS. If additional information is requested, filers need submit only the documents specified.

Exception: Workers whose EIC claim was disallowed in a previous year, but who now claim they are eligible, must attach Form 8862, “Information to Claim Earned Income Credit After Disallowance,” to their tax return in order to submit a new claim.

Can self-employed workers get the EIC and the CTC?

Yes. They will need to use Form 1040 to file their tax return and fill out additional forms: Schedule C, “Profit or Loss from Business,” (or Schedule C-EZ) and Schedule SE, “Self Employment Tax,” if their self-employment income is more than $400.  Call the IRS at 1-800-TAX-FORM to get the necessary forms or download them from the IRS website at: www.irs.gov/formspubs.

Social Security Number Requirements

Who needs a Social Security number?

To claim the EIC, valid Social Security numbers must be provided for each filer listed on the tax return and any child claimed for the EIC, including infants born before December 31, 2007. Only valid Social Security numbers issued to U.S. citizens or Social Security numbers issued to non-citizens who have permission to work legally in the United States are acceptable. For more information, see “EIC and CTC: Eligibility Rules for Immigrant Workers” below.

To claim the CTC, workers and qualifying children must have either a valid Social Security number or an Individual Taxpayer Identification Number (ITIN). For more information on ITINs, see the fact sheet “Individual Taxpayer Identification Numbers” at www.cbpp.org/eic2008.

Workers who don’t have Social Security numbers for their children by the tax filing deadline can still get the EIC or CTC by:

  • Filing their tax return without claiming the credits and then, after receiving the Social Security number, filing an “amended return” (Form 1040X) and attaching Schedule EIC (and Form 8812 if required for the CTC), OR

  • Filing Form 4868 to request an extension on their tax filing deadline to August 15. To have an application for a Social Security number sent to your home, call 1-800-772-1213. Or call the Social Security Administration office in your state to find out how to apply.

 

EIC and CTC: Eligibility Rules for Immigrant Workers

Can immigrant workers get the EIC?

Many legal immigrants who are employed can get the EIC. Previous changes in federal law that denied public benefits such as food stamps and SSI to many legal immigrants did not apply to the EIC. But there are rules to claim the EIC that are specific to immigrant workers. In order to claim the EIC, immigrant workers, their spouses, and children listed on Schedule EIC must each have valid Social Security numbers that permit them to work legally in the United States. Individual Taxpayer Identification Numbers (ITIN) issued by the IRS to non-citizens and nonwork Social Security numbers issued to applicants or recipients of federally funded benefits programs cannot be used to claim the EIC. In addition, an immigrant must be a “resident alien for tax purposes” for the entire tax year to claim the EIC. An immigrant who was a non-resident alien at any time during the year cannot claim the EIC unless he or she:

  • was married to a U.S. citizen or a resident alien as of December 31 of the tax year, and

  • files a joint tax return with the spouse and chooses to be treated as a resident alien for the entire year. For more information on how resident alien status is determined, see IRS Publication 519, U.S. Tax Guide for Aliens.

Immigrants who are “resident aliens for tax purposes” may be legal permanent residents, meaning they have a “green card” (I-551 card). However, many legal immigrants who do not yet have their “green cards” may still be resident aliens for tax purposes. For example, the following immigrants might qualify for the EIC (and the CTC) if they and their family members have legal work authorization and Social Security numbers:

  • Amnesty temporary residents and amnesty family members granted “Family Fairness” or “Family Unity” status

  • Refugees, asylees and those granted Temporary Protected Status

  • Applicants for these and other immigration statuses who have legal work authorization and Social Security numbers.

Can immigrant workers get the CTC?

The rules for immigrant workers to claim the CTC are not as restrictive as for the EIC. Workers and their qualifying children must be either U.S. citizens or resident aliens living in the U.S. and have either a valid Social Security number (including a non-work SSN) or an ITIN.

Remember! Immigrant workers’ children must have lived with them in the U.S. for more than six months of the year to be considered qualifying children for the EIC or for the CTC. Also, the worker’s main home must be in the U.S.

Can immigrant workers who obtain legal work status claim the EIC for a previous year?

Workers who otherwise met all the EIC eligibility requirements in previous years, and later obtain legal work status from the U.S. Citizenship and Immigration Services (USCIS), may be able to claim the EIC for up to three previous years.  A worker’s spouse or qualifying children, if any, must also have legal work status. After receiving legal work status from the USCIS, the worker, spouse and qualifying children must obtain Social Security numbers. Such workers may claim the EIC by amending their tax return for the previous year, even if they had been denied the EIC in that year because they had not yet obtained a valid Social Security number. Or workers can file an original return for the previous year if they had not already done so. For more information, see IRS National Office Chief Counsel Advice Memorandum, CCA 200028034,“Claiming Previously Denied Earned Income Credit due to Invalid Social Security Numbers,” June 9, 2000. Contact the IRS at (202) 622-6060.

Does getting the EIC or CTC cause “public charge” problems for immigrant workers?

The EIC and CTC do not create “public charge” problems for immigrant workers. Receiving these credits is not considered an indication that the immigrant is unable to support him- or herself financially. In general, information on a tax return is confidential. The IRS cannot share individual tax return information with other government agencies, including the USCIS.  There are exceptions in cases involving federal criminal or terrorism investigations or when the IRS thinks someone is breaking a tax law. For more information about which immigrant workers qualify for the EIC, how to obtain Social Security numbers and other immigrant tax issues, call the National Immigration Law Center at (213) 639-3900.

Non-Traditional Families

EIC and CTC eligibility rules give a parent who lives with his or her child more than half of the year priority in claiming the EIC, even if other family members who live with the child could also claim the credit. This is a “custodial parent” under IRS rules.

What are the rules about filing status?

To get the EIC, workers can file as: “single,” “head of household” or “married filing jointly.” But the EIC is not available to taxpayers who file as “married filing separately.”  This requirement that married workers file a joint tax return does not apply to claims for the CTC — they may file separately.

What if married parents are separated but not divorced?

Parents who are separated but not divorced can file as “married filing separately.” But if they file this way, neither parent can claim the EIC. (As noted above, a claim for the CTC could be made by one spouse filing separately.) Separated parents have the option of filing as “married filing jointly.” If they do so, they can claim the EIC.

In addition, there is one situation in which a separated parent can claim the EIC without having to file jointly with the other parent — the parents must have lived apart for the last six months of the year and their child must have lived with one of them for more than half of the year. Also, the parent now living with the child must have paid more than half the cost of maintaining the household for the year and be able to claim the child as a dependent. Under these circumstances, that parent is considered unmarried for tax purposes and can file as “head of household.” That parent may claim the EIC. This option can be important, for example, to workers who are victims of domestic violence or whose separated spouse is not cooperative.

What if the parents in a family are divorced?

If parents are divorced, the parent with whom the child lived for more than half the year is entitled to file for the EIC, regardless of which parent claims the child as a dependent. If both parents lived with the child for more than six months, either parent could claim the EIC, and the parents should decide which one will.

Note: A parent not living with his or her child for more than half the year may be eligible for the smaller EIC for workers without qualifying children. That parent may also claim the CTC if he or she is permitted to claim the child as a dependent by a divorce or separate maintenance agreement.  (In these cases, the custodial parent must sign IRS Form 8332, “Release of Claim for Child of Divorced or Separated Parents,” and the form must be attached to the tax return of the non-custodial parent.)  Note that even though the non-custodial parent claims the CTC, an eligible parent who lives with the child more than six months of the year remains entitled to claim that child for the EIC.

What if both parents and their child live together, but the parents are not married?

If the parents are not married, and each lived with the child for more than six months, they may choose which parent claims the EIC and CTC, if both are otherwise eligible. Since they are unmarried, they do not file a joint return.

What about a three-generation household: a grandparent, parent and child?

In a three-generation household, only one person can claim the EIC and CTC, even if more than one family member works and is otherwise eligible. For both the EIC and CTC, a working parent living for more than six months of the year with his or her child has the priority to claim the EIC. If the parent chooses not to claim the EIC or CTC, or was not working, an eligible grandparent may claim these credits.

What about child support?

Child support payments a parent receives do not count as income when determining eligibility for the EIC or CTC or the amount of either credit.

What about foster families?

For purposes of the EIC and CTC, a foster child must be placed with the worker by an authorized placement agency, such as a licensed foster care agency, state agency or court. Such children must live with the worker for more than half of the tax year and meet the other requirements for a qualifying child.

Foster care payments generally do not count as income when determining eligibility for the EIC or the CTC.

 

College Financial Aid

There are several circumstances in which parents or children may be college students able to receive financial aid: 

College students who work and are raising children may be eligible to claim the EIC and CTC.

Parents of full-time students under age 24 (or students of any age who have total and permanent disabilities) may also be able to claim the EIC.

Students between ages 25 and 64 who are not raising children and who work may also be eligible for the EIC.

Non-taxable scholarships and grants are not considered income in determining eligibility for the EIC or CTC.  Taxable grants and scholarships are not considered “earned income,” but are included in determining “adjusted gross income,” which may affect eligibility for the EIC and CTC.

The EIC is counted as family income in determining financial aid eligibility, but CTC refunds are not counted as family income. However, for many low-income students who work, or their parents, the EIC will have no effect on financial aid amounts or eligibility. Adding the tax credit refund amounts to other income often will not cause income to reach the threshold at which the student or family is required to contribute to the cost of education. For more information, contact your college’s financial aid office.

For information on which scholarships and grants are taxable or non-taxable, call the IRS at 1-800-829- 1040. For ideas on outreach to students, see the fact sheet, “Ten Ways Your College or University Can Promote the EIC”.

 

Can Military Personnel Claim the EIC and CTC?

Overseas assignments. Members of the military assigned overseas may wonder about their eligibility for the EIC or CTC. Military personnel can claim these credits whether they live in the United States or overseas.

The IRS considers an individual assigned to an overseas tour of duty to be temporarily absent from the U.S. due to a special circumstance. The length of time the person is absent is treated as though he or she was in the U.S., as long as the individual plans to return to his or her main home in the U.S. at the end of the military assignment. Therefore, military personnel who live with qualifying children while stationed on active duty outside the U.S. can be eligible for the EIC and CTC. Even if their qualifying children remain in the U.S., the children may be claimed for the EIC. Military couples living apart due to a military assignment must still file a joint return to receive the EIC.

An individual in the military under age 19 may be claimed as a qualifying child for the EIC. If such an individual is temporarily absent due to an overseas military assignment, he or she still may be considered a qualifying child as long as he or she intends to return home at the end of the military assignment.

Combat pay. Military pay received in a combat zone is non-taxable earned income, but it is treated differently than other forms of non-taxable earned income for EIC and CTC purposes. Military personnel may choose to count combat pay when calculating their eligibility for the EIC if it is an advantage. For example, adding combat pay to a family’s other earnings might raise the family’s total earned income above EIC eligibility levels, or the added income might reduce the amount of the EIC. Under these circumstances a family would not want to count the combat pay. But in families with little or no other income, counting combat pay is likely to result in a larger EIC. Combat pay counted for the EIC (or CTC) remains nontaxable income.

The treatment of combat pay also affects figuring eligibility for the CTC. Combat pay must be counted as income for the CTC. For the CTC, counting combat pay will always work to the family’s advantage, enabling more military families to qualify.

Non-taxable military allowances for housing and subsistence — including meals and lodging furnished in-kind to personnel residing on military bases — are not considered earned income for EIC or CTC purposes. Such pay and allowances are indicated on W-2 forms, but are not added to regular wage income to calculate eligibility for the EIC. Veterans’ benefits and military retirement pay are not considered earned income.

For further information on EIC and CTC rules for military personnel, see IRS Publication 3 “Tax Information for Military Personnel (Including Reservists Called to Active Duty).