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What Is the Earned Income Tax Credit?

This valuable credit -- for lower-income taxpayers who work -- can save you a bundle.

Photo: Thinkstock / The Nest

Are you a low-income taxpayer who works? Good news: For tax year 2011, the earned income credit (EIC) can be worth up to $5,751, depending on your filing status, income and number of qualifying children (but pay attention because the rules vary).

The EIC for Taxpayers With Qualifying Children

If you have one more kids, you must do the following to qualify for EIC:

1. You must have a qualifying child who meets the relationship, age, residency and joint return tests. The child must be your:

  • Child or adopted child
  • Stepchild
  • Eligible foster child
  • Sibling, half-sibling or stepsibling
  • Descendent of any of the above, like a grandchild or niece

2. Your qualifying child must be one of these:

  • Under age 19 and younger than you
  • Full-time student under age 24 and younger than you
  • Any age if permanently and totally disabled

3. Must have lived with you more than half the year in the U.S. Exceptions are allowed for temporary absences.

4. You must have a qualifying child who isn't claimed by another taxpayer for child-related benefits -- with exceptions for children of divorced or separated parents.

5. You must have earned income and adjusted gross income (AGI) less than:

  • $36,052 -- $41,132 if married filing jointly -- with one qualifying child
  • $40,964 -- $46,044 if married filing jointly -- with two qualifying children
  • $43,998 -- $49,078 if married filing jointly -- with three or more children

Taxpayers Without Qualifying Children

To qualify for the EIC, those without qualifying children must:

  • Be at least 25 years old but younger than 65 at the end of 2011
  • Not be a dependent of another taxpayer
  • Not be a qualifying child of another taxpayer
  • Have lived in the U.S. for more than half the year
  • Have earned income and AGI of less than $13,660 -- $18,740 if married filing jointly

Additional Rules for All Taxpayers

To qualify for the EIC, you must:

  • Have a valid Social Security number (SSN)
  • Not file using the married filing separately status
  • Be a U.S. citizen or resident alien all year
  • Not file a Form 2555 or Form 2555-EZ
  • Have investment income of $3,150 or less
  • Not be a dependent or qualifying child of another taxpayer

Ready to do your taxes? Head over to H&R Block and sign up to get a 20% discount on their tax services -- just for Nesties!