Overview of the Earned Income Credit (EIC)
The Earned Income Credit (EIC) is a refundable tax credit that can reduce a taxpayer’s total tax liability or even result in a refund if the credit amount exceeds the taxes owed.
In the tax software, eligibility for the EIC is determined based on several factors, including earned income, filing status, and dependent information. The software automatically calculates the credit based on the provided details. However, there are instances where the credit may not be applied as expected.
Below are steps to ensure the EIC is properly marked on the return, as well as common reasons why the credit might not be calculated:
1. Verify Filing Status and Dependent Information
Incorrect or missing filing status or dependent details can lead to an error when trying to access the Schedule EIC screen.
To verify:
Open the Federal Information section.
Ensure the filing status is correct.
Double-check that all dependent details have been properly entered.
2. Selecting Dependents on the Schedule EIC Screen
To access the Schedule EIC screen:
Navigate to Federal Section in the tax return.
Click on Credits to open the credits section.
Select Schedule EIC - Earned Income Credit.
On this screen, you can select up to three dependents to claim the EIC. The software will automatically pull information from the Dependent Information section.
3. Answering the Schedule EIC - Checklist
To ensure EIC eligibility:
Go to Federal Information.
Select Credits to open the credits page.
Click Schedule EIC - Checklist and answer all required eligibility questions.
This checklist helps determine whether the taxpayer qualifies for the EIC, either with qualifying dependents or as an individual without dependents.
4. Completing Form 8867 - Paid Preparer’s Due Diligence Checklist
For the EIC to be calculated, Form 8867 (Paid Preparer’s Due Diligence Checklist) must be completed.
To access Form 8867:
Navigate to Federal Information.
Select Miscellaneous Forms.
Click on Paid Preparer EIC Checklist.
Complete the required due diligence questions for the EIC.
5. Common Reasons Why the EIC Is Not Calculating
Even after completing the required forms, the EIC may still not be applied due to:
❌ Earned Income Too High
The IRS sets annual income limits for the EIC based on filing status.
If the taxpayer’s Adjusted Gross Income (AGI) exceeds the threshold, they won’t qualify.
❌ Disqualifying Income
Certain types of income, such as foreign-earned income or specific taxable benefits, can disqualify a taxpayer from claiming the credit.
❌ Non-Qualifying Dependent
Not all dependents qualify for the EIC.
A dependent may be disqualified due to relationship, residency, citizenship, support level, or income level.
❌ Tax Liability Considerations
While the EIC is a refundable credit, if a taxpayer’s liability has already been reduced by other credits, the software may not show an additional refundable amount.
Final Notes
Ensuring the correct filing status, dependent details, and EIC eligibility questions are completed is crucial for calculating the Earned Income Credit. If the EIC is still not appearing, reviewing the income sources, dependent qualifications, and IRS guidelines may help determine why the credit isn’t being applied.
🚨 Disclaimer: This guide is for informational purposes only and should not be considered tax, legal, or accounting advice.