EITC

• In 1975, Congress created the Earned Income Tax Credit to partially reduce Social Security taxes and create work incentives. This program refunds federal income taxes for low- to moderate-income individuals and families. Claimants must have some earnings from employment, self-employment or other sources. They also must meet certain rules and answer questions that are available on federal tax forms or at the IRS website.
  
  

Qualifications

• To qualify for the Earned Income Tax Credit, individuals must have a valid Social Security number and earned income from working for someone else or themselves, or from another source such as investments or pensions. They must be a U.S. citizen, a resident alien or a nonresident alien. If married, they must file a joint return. They cannot file foreign earned income exclusions and must meet certain income limits, whether from employment or investments.
  
  

Children

• Workers, and their spouses if filing jointly, who have no qualifying children must have lived in the U.S. for more than half the year. They, or their spouse, must either be 25 to 64 years old. Claimants cannot be dependents of someone else. To qualify a child from the claim, that child must have a valid Social Security number. He must be a son, adopted child, stepchild, foster child or descended from any of them. He also can be a sibling, stepsibling or descended from them, such as a nephew. The child must be below 19 or 24, if a full-time student, but can be any age if permanently and totally disabled. In addition, he must have lived with the taxpayer in the U.S. for more than half the year and cannot file a joint return.
  
  

Income Limits

• Income limits for the Earned Income Tax Credit generally go up from year to year. For the 2011 tax year, those with no qualifying children can earn up to $13,660 as individuals or $18,740 if married and filing jointly. With one qualifying child, limits go up to $36,052 or $41,132, and with two children they become $40,964 or $46,044. Limits top out at $43,998 or $49,078 for those with three or more children. Annual investment income must be below $3,150.
  
  

Credit

• Calculations for earned income credit are included in federal tax forms. The maximum credit is $464 for those with no children, $3,094 with one qualifying child, $5,112 with two qualifying children or $5,751 with three or more children. Workers may receive a maximum of $1,830 from their employers as an advance Earned Income Tax Credit. EITC refunds are not considered income when calculating federal public benefits. Twenty-two states as well as certain counties and cities also grant a similar credit on state and local income taxes to those who qualify for EITC.