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Definitions of Earned Income Tax Credit

Qualifying Child

A qualifying child must be a qualifying child under the uniform definition of a child as it relates to the rules on personal exemptions, meaning the following tests must be met:

  1. Relationship Test: The child must be the taxpayer’s:
    1. Son, daughter, stepson, or stepdaughter (or descendant of such individual)
    2. Brother, sister, stepbrother, or stepsister (or descendant of any of these individuals – e.g., a niece or nephew)
    3. Eligible foster child (an individual placed with the taxpayer by an authorized placement agency or by court order)
    4. Adopted child who is legally adopted or lawfully placed with the taxpayer by an authorized placement agency for legal adoption by the taxpayer. Caution: A child with only an ATIN won’t qualify - see “Identification Requirement” below.
  2. Residency Test: A qualifying child must live with the taxpayer in the U.S. for more than half the year. Temporary absence from home (such as to attend school) can still qualify as time spent at home. A child who was born or died during the taxable year is treated as having lived with the taxpayer the entire year if the taxpayer’s home was the child’s home the entire time he or she was alive during the year.
  3. Age Test: The child must be under age 19 at the end of the tax year or be a full-time student under age 24 at the end of the tax year., The age test does not apply to a child who is permanently and totally disabled.
    1. Full-time student - A full-time student is a student who is enrolled for the number of hours or courses a school considers full-time attendance during some part of each of 5 calendar months during the calendar year., The 5 calendar months need not be consecutive.
    2. School - The term "school" includes elementary schools, junior and senior high schools, colleges, universities, and technical, trade and mechanical schools. It does not include on-the-job training courses, correspondence schools and night schools (see night school below).
    3. Vocational high school students - Students who work on "co-op" jobs in private industry as a part of a school's prescribed course of classroom and practical training are considered full-time students.
    4. Night school - A child is not a full-time student while attending school only at night. However, full-time attendance at a school may include some attendance at night as part of a full-time course of study.
    5. Permanently and totally disabled - A child is permanently and totally disabled if both the following apply:
      1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition, and
      2. A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.
  4. Additional Requirements:
    1. Joint Return - The child will not be a qualifying child if he or she files a joint return, unless the return is filed solely to claim a refund.
    2. Younger than credit claimant - A qualifying child must be younger than the taxpayer who is claiming the EIC. This means, for example, that a taxpayer cannot claim the credit for an older brother or sister.  

Adjusted Gross Income

Use the regular AGI without modification.

Disqualified Income

Means interest or dividends to the extent includible in gross income for the tax year plus the following income:

  1. Tax-exempt interest received or accrued during the tax year., Tax-exempt interest is defined by the rules requiring disclosure of the amount of tax-exempt interest on the return.
  2. The excess (if any) of gross income from non-business rents or royalties over the sum of:
    1. The noninterest deductions that are clearly and directly allocable to that gross income, and
    2. The interest deductions properly allocable to the gross income.
  3. Capital gain net income (as defined in Code Section 1222) of the taxpayer for the year; and
  4. The excess, if any, of the aggregate income from all passive activities for the year (determined without regard to any amount otherwise included in earned income under Code Sec. 32(c)(2), or the other disqualified income described above) over the aggregate losses from all passive activities for the tax year., For purposes of this rule, “passive activity” has the same meaning as under the Code Section 469 passive activity rules.

Disqualified income doesn't include other unearned income such as social security benefits and pension income. Those items affect the right to the earned income credit only to the extent they increase the amount of adjusted gross income used to calculate the amount of the credit that's phased out.

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