ShareWare OnLine 2/ShareWare OnLine Volume 2 (CMS Software)(1993).iso/finance/ttool92.zip/CHAPT35.DOC

Text File | 1992-12-12 | 45KB | 1,022 lines

Chapter 35. Earned Income Credit

The earned income credit is now three credits. The money you can receive
from the earned income credit has been increased. The earned income credit
is made up of the following three credits.

1)  The basic credit,

2)  The health insurance credit, and

3)  The extra credit for child born in 1992.

You may be able to receive an amount for each of the three credits. However,
there are certain rules you must meet. These are explained later under What
Is the Credit?

More people eligible to get the credit. New rules make it possible for more
people to receive the credit this year than in past years. You can file as
single, head of household, married filing jointly, or qualified widow(er)
with dependent child. To meet the rules for years after 1992 you must:

1)  Work,

2)  Have earned income and adjusted gross income of less than $22,370, and

3)  Have a qualifying child live with you in your home in the United States.

The words "qualifying child" have a new meaning that is explained later under
Who May Take the Credit.

You must fill out Schedule EIC and attach it to your tax return to get the
credit. For more information about the new form, see the heading How To Figure
the Credit.

Credit has no effect on certain welfare benefits. The earned income credit
and the advance earned income credit payments you receive will not be used to
determine whether you are eligible for certain benefit programs or how much
you can receive from the benefit programs. The benefit programs that are not
affected by the earned income credit or the advance earned income credit are:

∙  AFDC,

∙  Medicaid,

∙  SSI,

∙  Food Stamps, and

∙  Low-income housing.

Introduction

This chapter discusses the earned income credit. The earned income credit is
a special credit for lower-income workers who have a child or children living
with them. The credit reduces the amount of tax you owe (if any) and is
intended to offset some of the increases in living expenses and social
security taxes. The earned income credit is made up of three different
credits. They are:

1)  The basic credit,

2)  The health insurance credit, and

3)  The extra credit for child born in 1992.

This chapter will explain each of the three credits that make up the earned
income credit. It will also explain the following:

1)  Who may qualify for the credit,

2)  What is earned income,

3)  How to figure the credit, and

4)  What form you will need to claim the credit.

Related publications and forms.

This chapter refers to some publications and forms you may need. The list of
forms does not include Forms 1040, 1040A, and 1040EZ. For more information,
you may want to order the following:

    Publication 503, Child and Dependent Care Expenses

    Publication 504, Tax Information for Divorced or Separated Individuals

    Publication 533, Self-Employment Tax

    Publication 535, Business Expenses

    Publication 596, Earned Income Credit

    Schedule EIC, Earned Income Credit

    Form 2441, Child and Dependent Care Expenses

What Is the Credit?

As discussed earlier the earned income credit is a special credit for
lower-income workers with a child or children who live with them. The earned
income credit is made up of three different credits. The amount of the credit
has also increased. The three credits are:

1)  The basic credit,

2)  The health insurance credit, and

3)  The extra credit for child born in 1992.


To get the credit:

1)  You must file a tax return - even if:

    ∙  You do not owe any tax, or

    ∙  You did not earn enough money to file a return.

2)  Fill out Schedule EIC and attach it to either Form 1040 or Form 1040A.

3)  You must meet certain rules. These rules are explained under Who May
    Take the Credit?

4)  An easy way - Let the Internal Revenue Service figure the credit for
    you. Fill out Schedule EIC, lines 1 through 3b and attach it to your
    return. See IRS will figure your credit for you, later.

Read the rest of this section to learn more about the earned income credit.

Basic Credit

This credit is part of the earned income credit. It is based on how many
qualifying children live with you. If you have one qualifying child, you may
be entitled to a credit of up to $1,324. If you have two or more qualifying
children, you may be entitled to a credit of up to $1,384. The term "qualifying
child" is explained under Who May Take the Credit? However, keep reading and
don't go to that section yet.

Health Insurance Credit

This credit is another part of the earned income credit. You may be able to
take this credit in addition to the basic credit and the extra credit for
a child born in 1992. You can take the health insurance credit if you paid
health insurance premiums that include coverage for one or more qualifying
children. If the health insurance credit is more than what you actually paid
during the year for health insurance premiums, you can claim only the amount
you paid. If you claim this part of the earned income credit, your health
insurance credit could be as much as $451.

Example. Jerry can take the basic credit. He paid $300 during the year for
a health insurance policy that covers him and his qualifying daughter. He
figures his health insurance credit to be $325. Since the $300 he paid for
health insurance is less than $325, Jerry's health insurance credit is
limited to $300.

Insurance company information. If you take the health insurance credit, you
must provide Internal Revenue Service with the name of your insurance company
and the amount of the health insurance premiums that you paid in 1992. Use
Schedule EIC to report this information. You can read more about this under
the section called How To Figure the Credit.

Important Note. You must pay the health insurance premium yourself. Payments
made by someone else (for example, your employer) DO NOT  count as payments
you made.

Other payments which do not count as health insurance premiums include:

∙  Amounts paid to doctors, dentists, hospitals, etc.,

∙  Amounts paid for prescription medicines and drugs,

∙  Amounts paid to an employer-sponsored health insurance plan that were
   not included in your gross income (cafeteria plan), or

∙  Any amount paid, reimbursed, or subsidized by Federal, state, or local
   governments, or their subsidiary agencies or offices unless you must also
   include that amount in your income.


Other Medical Expenses

If you claim the health insurance credit, you must subtract the amount of the
credit from any other medical expenses you claim on Form 1040. These other
medical expenses are:

1)  The expenses eligible for the self-employed health insurance deduction
    on Form 1040, line 26, and

2)  The expenses eligible for the medical expense deduction on Form 1040,
    Schedule A - Itemized Deductions.

Special computation for the self-employed. If you qualify for the health
insurance credit, are self-employed, and take the self-employed health
insurance deduction (line 26, Form 1040), you must do a special computation.
First, complete Schedule EIC, lines 1 through 16. Next, go to the worksheet in
Publication 596 to help you figure your correct self-employed health insurance
deduction and adjusted gross income for use in filing your tax return. For
more information about the self-employed health insurance deduction, see
Publication 535, Chapter 8, Health Plans (Medical Insurance).

Extra Credit for Child Born in 1992

This credit is another part of the earned income credit. You may be able to
take this credit in addition to the basic credit and the health insurance
credit. This extra credit is limited to one qualifying child who is under
age 1 on December 31, 1992. Your extra credit could be as much as $376.

Example. Mary had a baby on July 4, l992. She files a joint return with her
husband John. Mary and John have no other children. Their earned income is
$15,100. They qualify for the basic credit. In addition, they may choose to
take the extra credit for a child born in 1992 since their child was under
age 1 at the end of their tax year (December 31, 1992).

Child and dependent care credit. This credit is not part of the earned income
credit. But, if you have a child under age 1, you may have a choice to make.
You may take the extra credit for a child born in 1992 OR the child and
dependent care credit (if eligible) for the child under age 1. You can choose
only one credit. You cannot take both for the same child. If you choose the
extra credit for a child born in 1992 instead of the child and dependent care
credit, you can still take the child and dependent care credit for your other
qualifying children. To figure the child and dependent care expenses, use Form
2441 if you file Form 1040 (or Schedule 2, Child and Dependent Care Expenses
for Form 1040A Filers if you file Form 1040A).

Exclusion of employer-provided dependent care benefits. If you take the extra
credit for a child born in 1992, you cannot take the child and dependent care
credit (discussed previously) or the exclusion of employer-provided dependent
care benefits on Form 2441 (or Schedule 2) for the same child.

If you did not receive any employer-provided dependent care benefits and you
have no tax liability, you should take the extra credit for a child born in
1992 and not file Form 2441 (or Schedule 2).

However, if you choose to take the child and dependent care credit or the
exclusion of employer-provided dependent care benefits on Form 2441 (or
Schedule 2) for your qualifying child born in 1992 instead of the extra credit
for a child born in 1992, you can still include that child on Schedule EIC to
figure your basic credit and the health insurance credit.

Which credit is better for you? If you qualify for both the child and
dependent care credit (or the exclusion of employer-provided dependent care
benefits) and the extra credit for a child born in 1992, you should claim the
credit that is better for you. If you are not sure which credit is better,
you should complete the following steps:

If you file Form 1040:

Step 1.

∙  Fill out Schedule EIC and only figure the basic credit (and the health
   insurance credit, if eligible). Do not figure the extra credit for a
   child born in 1992.

∙  Fill out Form 2441 and include your qualified child care expenses for
   your child born in 1992.

∙  Fill out Form 1040 through line 61 (or line 64, if you owe tax).

Step 2.

∙  Fill out Schedule EIC and figure the basic credit AND the extra credit
   for child born in 1992 (and the health insurance credit, if eligible).

∙  Fill out Form 2441 only if you have another child who qualifies for the
   child and dependent care credit. However, do not include the qualified
   child and dependent care expenses for your child born in 1992.

∙  Fill out Form 1040 through line 61 (or line 64, if you owe tax).

Step 3.

Compare Step 1 and Step 2. See which Step gives the bigger refund (or the
smaller tax). File your tax return and use the Step which is better for you.

If you file Form 1040A:

Step 1.

∙  Fill out Schedule EIC and only figure the basic credit (and the health
   insurance credit, if eligible). Do not figure the extra credit for a
   child born in 1992.

∙  Fill out Schedule 2 and include your qualified child care expenses for
   your child born in 1992, and

∙  Fill out Form 1040A through line 29 (or line 32, if you owe tax).

Step 2.

∙  Fill out Schedule EIC and figure the basic credit AND the extra credit
   for child born in 1992 (and the health insurance credit, if eligible).

∙  Fill out Schedule 2 only if you have another child who qualifies for the
   child and dependent care credit. However, do not include the qualified
   child care expenses for your child born in 1992.

∙  Fill out Form 1040A through line 29 (or line 32, if you owe tax).

Step 3. Compare Step 1 and Step 2. See which Step gives the bigger refund (or
the smaller tax). File your tax return and use the Step which is better for
you.

Important Note. For more detailed information, see the instructions for Form
2441 (or Schedule 2) and get Publication 503.

Who May Take the Credit?

There are certain rules you must meet to claim any of the three credits that
are part of the earned income credit. In order to take any of these credits
you must meet all 9 of the following rules:

1)  You must have a qualifying child who lived with you for more than 6
    months (12 months for a foster child) in 1992. The home must be in
    the United States. See Birth or death of a child, later for more
    information.

2)  You must have earned income during the year.

3)  Your earned income and adjusted gross income must each be less than
    $22,370.

4)  Your return must cover a 12-month period. This does not apply if a short
    period return is filed because of an individual's death.

5)  Your filing status cannot be married filing separate. See Married
    taxpayers, later, for an exception to the joint return rule.

6)  You cannot be a qualifying child of another person.

7)  Your qualifying child cannot be the qualifying child of another person
    whose adjusted gross income is more than yours.

8)  You usually must claim a qualifying child who is married as a dependent.
    See Qualifying child who is married, later, for an exception.

9)  You did not exclude from your gross income any income earned in
    foreign countries, or deduct or exclude a foreign housing amount. See
    Publication 54, Tax Guide for U.S. Citizens and Resident Aliens, for
    more information.

Important Note. If either your earned income or adjusted gross income is
$22,370 or more, you do not qualify for the earned income credit. If your
earned income from Schedule EIC, line 7, is $22,370 or more, enter "NO" on
line 56, Form 1040 (or line 28c, Form 1040A).

Married taxpayers. If you are married, you and your spouse usually must file
a joint return to claim the earned income credit. Even though you are married,
you may file as head of household and claim the credit on your return if:

1)  Your spouse did not live in your home at any time during the last 6
    months of the year,

2)  You paid more than half the cost to keep up your home for the entire
    year, and

3)  Your home was, for more than 6 months, the main home of your child for
    whom you will be entitled to claim an exemption.

You will be considered to meet (3), even if you cannot claim your child as
an exemption because you released your claim in writing to the other parent
or there is a pre-1985 agreement (decree of divorce or separate maintenance
or written agreement) granting the exemption to your child's other parent.

Who Is a Qualifying Child?

You have a qualifying child if your child meets three tests:

1)  Relationship,

2)  Residency, and

3)  Age.

Each test has separate rules. The three tests are explained next, one at
a time.

1. Relationship Test

To meet the relationship test for a qualifying child, the child must be your:

∙  Son, daughter, or adopted child (or a descendant of your son, daughter,
   or adopted child - for example, a grandchild)

∙  Stepson or stepdaughter, or

∙  Eligible foster child.

Adopted child. Your adopted child is treated as related to you by blood
and includes a child placed with you for adoption by an authorized placement
agency. Also, your home must have been the child's home from the date the
child was adopted or placed with you.

Eligible foster child. A child is your eligible foster child if:

1)  The child lived with you and was a member of your household for the whole
    year (12 months), and

2)  You care for the child as you would your own.


Birth or death of a child. A child is considered to have lived with you for
all of 1992 if both of the following apply:

1)  Your child was born or died during the year, and

2)  Your home was the child's home while he or she was alive.

Qualifying child who is married. If your qualifying child is married, you
generally must claim your married child as a dependent on your return to
get the earned income credit. If you cannot claim your married child as a
dependent, you may still get the earned income credit if you meet either
of the following statements:

1)  You did not claim your child as a dependent because you gave that right
    to your child's other parent by filling out Form 8332, Release of Claim
    to Exemption for Child of Divorced or Separated Parents, or

2)  You did not claim your child as a dependent because you gave that right
    to your child's other parent in a pre─1985 agreement (such as a separation
    agreement or divorce decree).

If you meet either (1) or (2), you could claim the credit. If you need more
information about either of these statements and when you can claim your
child as a dependent, see Chapter 3.

2. Residency Test

To meet the residency test for a qualifying child, there are two rules:

1)  You must have a child who lives with you in your main home for more than
    6 months during the year (for 12 months if your qualifying child is a
    foster child), and

2)  The home must be in the United States.

Temporary absences. You will meet the residency test if you or the qualifying
child is away from home on a temporary absence due to a special circumstance.
Examples of a temporary absence include:

∙  Illness,

∙  Attending school,

∙  Business,

∙  Vacation, or

∙  Military service.

3. Age Test

To meet the age test for a qualifying child, your child must meet one of
three rules.

1)  The child must be under age 19 at the end of the year,

2)  The child must be a full-time student under age 24 at the end of the
    year, or

3)  The child is permanently or totally disabled at any time during the tax
    year, regardless of age.

Full-time student. Your child is a full-time student if he or she:

∙  Was enrolled as a student at a school during any 5 months of 1992 for the
   number of hours or classes that the school considers to be full time, or

∙  Took a full-time, on-farm training course during any 5 months of 1992.
   The course had to be given by a school or a state, county, or local
   government agency.

School. A school includes technical, trade, and mechanical schools. It does
not include on-the-job training courses or correspondence schools.

Permanently and totally disabled. Your child is permanently and totally
disabled during the tax year if he or she cannot engage in any substantial
gainful activity because of his or her physical or mental condition. The
condition must have lasted or be expected to last continuously for 12 months
or more, or to result in death.

Other Rules for a Qualifying Child

The next two sections explain some other rules about your qualifying child.

Qualifying Child of Another Person

If you are a qualifying child of another person, then you cannot claim the
earned income credit - no matter how many qualifying children you have.

Example. In 1992, you and your daughter lived with your mother. You are 22
years old and attended beauty school full time. You had a part-time job and
earned $2,700. You had no other income. Your mother worked and earned $11,000.

You meet all the rules for the earned income credit. Your daughter is your
qualifying child.

Your mother also meets all the rules for the earned income credit. Both you
and your daughter are qualifying children of your mother.

However, you cannot take the earned income credit in 1992, because you are
your mother's qualifying child.

Qualifying Child of More Than One Person

If you and someone else have the same qualifying child, then only the person
with the higher adjusted gross income can have the qualifying child and may
be eligible to take the credit. This is true even if the person with the
higher adjusted gross income does not meet all the rules to claim the credit.
Adjusted gross income is on Form 1040, line 31, or Form 1040A, line 16.

Example 1. You and your son lived with your mother in 1992. You are 25 years
old. You have a part-time job and your earned income and adjusted gross income
were $3,000. Your mother worked and had earned income and adjusted gross
income of $11,000.

You and your mother qualify for the earned income credit. Your son is a
qualifying child of both you and your mother. However, because you both have
the same qualifying child, only one of you can be eligible to take the credit.
Because your mother's adjusted gross income of $11,000 is more than your
adjusted gross income of $3,000, only your mother would be entitled to take
the earned income credit in 1992. You cannot take the credit in 1992.

Example 2. Use the same facts from Example 1, except that your mother's
adjusted gross income is $23,000.

Your son is still a qualifying child of both you and your mother, but only
your mother is entitled to take the credit because her adjusted gross income
is higher than yours. However, your mother cannot take the earned income
credit because her adjusted gross income is more than $22,370. Even though
your mother cannot take the earned income credit, you cannot take the credit
either, because your mother's adjusted gross income is more than yours.

Important Note. If the other person is your spouse and you file a joint
return, this rule does not apply.

Social Security Number

You must provide a social security number for each qualifying child who is
age 1 or over at the end of the year. The social security number is entered
on Schedule EIC, line 1, column (e).

If your child does not have a social security number, apply for one by filing
Form SS─5 with your local Social Security Administration (SSA). Ask the SSA
to give you a Form SSA─5028, Receipt for Application for a Social Security
Number. If you have not received your child's social security number when you
are ready to file your return, enter "Applied for" on Schedule EIC, line 1,
column (e). If you received Form SSA─5028, attach a copy to your return.

What Is Earned Income?

As you already know, you must have a qualifying child living with you to
qualify for the earned income credit. But you also must work and have earned
income. There are two ways to get earned income.

1)  You work for someone who pays you, or

2)  You work in a business you own.

That's why this credit is called the earned income credit. What is "earned
income"? This section will explain what counts as earned income for purposes
of getting the earned income credit.

What Counts as Earned Income

For purposes of the earned income credit, earned income includes all the
income you get from working - even if it is not taxable. For example, earned
income includes all the following types of income:

∙  Wages, salaries, and tips,

∙  Union strike benefits,

∙  Long-term disability benefits reported to you on Form W─2,

∙  Net earnings from self-employment,

∙  Voluntary salary deferrals (Your Form W─2 should show the amount deferred
   in Box 17 and the "Deferred compensation" box should also be checked),

∙  Combat pay - (If you served in Operation Desert Storm, contact your legal
   assistance office or unit tax advisor to determine the amount of your
   nontaxable combat pay.),

∙  Basic quarters and subsistence allowances and in-kind quarters and
   subsistence from the U.S. military, which are not taxed,

∙  Meals or lodging provided by an employer for the convenience of the
   employer,

∙  Housing allowance or rental value of a parsonage for the clergy,

∙  Excludable employer-provided dependent care benefits, or

∙  Anything else of value (money, goods, or services) you get from someone
   for services you performed even if it is not taxable.

Earned income that is not taxed. As you can see, this list includes some
earned income amounts that you do not pay income taxes on. However, they
are still earned income for purposes of the earned income credit.

To figure the earned income credit, you add the amounts of earned income that
were not taxed to any other amounts of taxable earned income you received
during the year. You do this by putting the amount of the earned income that
is not taxed on Schedule EIC, line 5. More information on how to do this will
be in the section called How To Figure the Credit.

Special note for military personnel. Each member of the military should
receive a Leave and Earnings Statement (LES) at the end of the year. This
statement should include specific allowance information. If the statement does
not provide enough information or you need additional help, contact your legal
assistance office or unit tax advisor.

Disability benefits. Long-term disability benefits reported to you on Form W─2
are earned income. These amounts should be included on line 7, Form 1040 (or
line 7, Form 1040A).

If, when you reach normal retirement age, your disability benefits end,
and you begin receiving a pension, you will receive Form 1099─R, Total
Distributions from Profit-Sharing, Retirement Plans, Individual Retirement
Arrangements, Insurance Contracts, etc., instead of Form W─2. Amounts reported
on Form 1099─R are NOT earned income. Report these amounts on lines 17a and
17b, Form 1040 (or lines 11a and 11b, Form 1040A).

Community property laws. If you live in a state that has community property
laws for married persons, do not follow those community property laws when
you figure your earned income for purposes of the earned income credit.

Important Note. The next 4 headings are for self-employed persons or statutory
employees. If you are not self-employed or a statutory employee (explained
later), you can skip these sections and begin reading the section called What
Is Not Earned Income?

If You Own Your Business

If you own your business, you are self-employed. You must include your net
earnings from self-employment in earned income, even if the amount is less
than $400. Net earnings is the amount you get after you subtract your business
expenses and one-half of your self-employment taxes from your business gross
(total) income. If this figure is a net loss, you must subtract the loss from
your total earned income.

You may figure the amount of your net earnings by using either the regular or
optional methods shown on Schedule SE (Form 1040), Self-Employment Tax. These
methods are explained in Publication 533 and Schedule SE. If you are eligible
to choose the optional method, you may use up to $1,600 as the amount of
earned income.

Example. Anthony Smith had $20,000 in gross farm income and a net farm loss of
$5,000 for the year. He had no other income. Since his gross farm income was
more than $2,400 and his net earnings (a loss of $5,000) from farming were
less than $1,733, he was able to choose the farm optional method of figuring
self-employment tax.

Even though he had a net loss for the year, he entered $1,600 as net earnings
from self-employment on Schedule SE (Form 1040). The $1,600 is earned income
for purposes of figuring the earned income credit.

Net earnings from self-employment. Your net earnings from self-employment are
earned income. You report these earnings on Schedule SE (Form 1040), Section
A, line 3, or Section B, line 3. From this amount you must subtract the amount
you claimed (or should have claimed) on Form 1040, line 25. This net amount is
your earned income for purposes of the earned income credit. However, if you
do not have to file Schedule SE (because your net earnings from self-employment
is under $400), include the net amount in earned income on line 6, Schedule
EIC.

Statutory employee. Statutory employees are generally considered self-employed.
However, the wages paid to statutory employees have social security and
Medicare tax withheld. For purposes of the earned income credit, statutory
employees are treated as employees. Therefore, the gross (total) amount
received from employment is included in earned income. The four types of
statutory employees are:

1)  An agent (or commission) driver who delivers food or beverages (other
    than milk) or laundry or dry cleaning for someone else.

2)  A full-time life insurance salesperson.

3)  A homeworker who works by the guidelines of the person for whom the work
    is done, with materials furnished by and returned to that person or to
    someone that person designates.

4)  A traveling or city salesperson (other than an agent-driver or commission-
    driver) who works full time (except for sideline sales activities) for one
    firm or person getting orders from customers. The order must be for items
    for resale or use as supplies in the customer's business. The customers
    must be retailers, wholesalers, contractors, or operators of hotels,
    restaurants, or other businesses dealing with food or lodging.

If you were a "statutory employee" and you reported your income and expenses
on Schedule C (Form 1040), Profit or Loss from Business, your earned income
includes the amount on Line 1 of Schedule C.

If you need further information about statutory employees, see Publication
937, Business Reporting.

Approved Form 4361 and Form 4029. This section is for persons who have an
approved:

∙  Form 4361, Application for Exemption from Self-Employment Tax for Use by
   Ministers, Members of Religious Orders and Christian Science
   Practitioners, or

∙  Form 4029, Application for Exemption from Social Security Taxes and
   Waiver of Benefits.

Each approved form exempts certain income from the self-employment tax. Each
form is discussed in this section in terms of what is or is not earned income
for purposes of the earned income credit.

Form 4361. Income exempt from self-employment tax as a result of the filing
and approval of Form 4361 is earned income for purposes of the earned income
credit if it is wages, salaries, tips, or other employee compensation. This
includes housing allowances or the rental value of a parsonage that you
receive as part of your pay for services as an employee.

Amounts you received in the exercise of ministerial duties, but not as
an employee, are not earned income. Examples include fees for performing
marriages and honoraria for delivering speeches.

Any compensation you received from an undertaking unrelated to the ministry is
earned income. This is so whether you received the amounts as an employee or
as a self-employed individual.

Form 4029. If you have an approved Form 4029, all wages, salaries, tips,
and other employee compensation are earned income. Amounts you received as
a self-employed individual are not earned income.

What Is Not Earned Income?

Earned income for purposes of this credit does NOT include any of the
following amounts:

∙  Interest and dividends,

∙  Social security and railroad retirement benefits,

∙  Welfare benefits (including AFDC payments),

∙  Pensions or annuities,

∙  Veterans' benefits,

∙  Workers' compensation,

∙  Alimony,

∙  Child support,

∙  Unemployment compensation (insurance), or

∙  Taxable scholarship or fellowship grants that were not reported on Form
   W─2.

How To Figure the Credit

Once you know that you qualify for the earned income credit, you need to
know how to figure the amount of the credit. You have three choices of how
to figure the credit.

1)  You may have the IRS figure the credit for you. This is explained later
    under IRS will figure your credit for you,

2)  If you file Form 1040A, fill out Schedule EIC and attach it to your
    return, or

3)  If you file Form 1040, fill out Schedule EIC and attach it to your
    return.

Fill out schedule EIC and attach it to your return if you want to get the
credit. However, if you want the IRS to figure your credit, fill out Parts
II and III of this form and attach it to your return. See IRS will figure
your credit for you, later.

New earned income credit tables. There are three different tables you could
use to find the amount of your earned income credit.

Alternative minimum tax. The tax laws give special treatment to some kinds
of income and expenses. This special treatment could substantially reduce or
eliminate an individual's income tax. So that taxpayers who benefit from these
laws will pay at least a minimum amount of tax, there is a special tax called
the alternative minimum tax.

You may have to pay the alternative minimum tax if your taxable income for
regular tax purposes, combined with any of the adjustments and preference
items that apply to you, totals more than:

∙  $40,000 if you are married filing a joint return (or a qualifying
   widow(er) with dependent child)

∙  $30,000 if your filing status is head of household or single

You must reduce your earned income credit by the amount of any alternative
minimum tax you have for the tax year. If you need more information on this
topic, see Publication 909, Alternative Minimum Tax for Individuals.

Form 1040A and Schedule EIC

If you file Form 1040A, figure your credit on Schedule EIC. If your total
earned income (line 7) and your adjusted gross income (line 9) are each
less than $22,370, then complete Schedule EIC. If either line 7 or line 9 is
$22,370 or more, then you cannot claim the credit. If the amount on Schedule
EIC, line 7 is $22,370 or more, enter "NO" on Form 1040A, line 28c. See an
example and illustrated form in Publication 596. However, if you want the
IRS to figure your credit, see IRS will figure your credit for you later.

Form 1040 and Schedule EIC

If you file Form 1040, you must figure your credit on Schedule EIC. If your
total earned income (line 7) and your adjusted gross income (line 9) are each
less than $22,370, then complete Schedule EIC. If either line 7 or line 9 is
$22,370 or more, then you cannot claim the credit. If the amount on Schedule
EIC, line 7, is $22,370 or more, enter "NO" on Form 1040, line 56. If you want
the IRS to figure your credit, see IRS will figure your credit for you, later.

Remember - You may be able to take ALL THREE parts of the credit if you
qualify.

If You Do Not Have To File a Return

If you did not earn enough money last year to file a return, you may still be
able to get the earned income credit. To do this, you must meet all the rules
under Who May Take the Credit? earlier is this chapter.

Example. Joan Green is a single parent. Her daughter, Ann, is age 12 and lived
with her all year. Joan had a part-time job where she earned $3,000. She did
not pay for any health insurance. No income taxes were withheld from her pay.
She also received $6,000 of nontaxable AFDC payments.

Her earned income and adjusted gross income is $3,000. The AFDC payments are
not earned income. Joan's AFDC benefits will not be affected by any earned
income credit received.

Ann is Joan's qualifying child. Ann is not a qualifying child of anyone else.
Joan, herself, is not a qualifying child of anyone else.

Joan cannot file as head of household because she receives most of her support
from AFDC. Therefore, she would qualify for the single filing status. However,
Joan is not required to file a tax return because her gross income is below
$5,900. The $5,900 is the minimum amount of gross (total) income required to
file a tax return for the single filing status.

However, she does qualify for the earned income credit. To get the credit,
she files Schedule EIC and either Form 1040A or Form 1040.

How To Claim the Credit

In the last section you learned how to figure the credit. Once you figure it,
you need to know how to claim (receive) it. To receive your credit, you must
file a tax return. You can use either Form 1040 or Form 1040A and attach
Schedule EIC. You cannot use Form 1040EZ.

If you received advance earned income credit payments in 1992, you must file
a tax return for 1992. Advance earned income credit payments are discussed
later in this chapter.

If you file a tax return because you met the gross income filing requirements,
had taxes withheld from your wages, or received advance earned income credit
payments, you should enter your earned income credit on line 56, Form 1040 (or
line 28c, Form 1040A). Include any advance earned income credit payments you
received during the year on line 52, Form 1040 (or line 26, Form 1040A). Your
advance payments are shown on your Form W─2, box 8.

IRS will figure your credit for you. There are certain instructions you must
follow before IRS can figure the credit for you.

Form 1040. If you are filing Form 1040 and you want the IRS to figure the
credit for you, you must fill out portions of Form 1040 and all of Schedule
EIC, Part II, Information About Your Two Youngest Qualifying Children and Part
III, Other Information. To see which lines on Form 1040 you must fill out, go
to the Form 1040 instructions.

Health insurance credit and self-employed health insurance expenses. If you
are self-employed and have self-employed health insurance expenses and want
the IRS to figure the earned income credit for you, certain parts of Schedule
EIC must be filled out by you. They are:

1)  Part II, Information About Your Two Youngest Qualifying Children,

2)  Part III, Other Information,

3)  Part IV, Figure Your Earned Income Credit, lines 4 through 7 and
    line 9, and

4)  Write "HIC" on the dotted line to the left of line 9.

Form 1040A. If you are filing a return only to claim a refund of the earned
income credit, and if you want the IRS to figure the credit for you and send
you a payment, you can file Form 1040A. Be sure to:

1)  Fill in the parts of Form 1040A through line 22 that apply to you.

2)  If you file a joint return, use the space to the left of line 22 to
    separately show your own taxable income or your spouse's taxable income.

3)  Complete lines 24a, 24b, 26, 28a, 28b, and 28d, if they apply to you. If
    you received any advance earned income credit payments, show the amount
    of the payment on line 26.

4)  Attach the first copy or Copy B of all your W─2 forms. Also attach any
    1099─R forms that has an amount in Box 4, Federal income tax withheld.

5)  Complete and attach any schedules or forms asked for on the lines you
    completed.

6)  Complete Schedule EIC, Part II, Information About Your Two Youngest
    Qualifying Children, and Part III, Other Information. This is page 1
    of Schedule EIC.

7)  Sign and date your return (both spouses must sign a joint return).

8)  Write "EIC" to the left of line 28c if you can take the earned income
    credit.

9)  Mail your return by April 15, 1993.

Important Note. Attach Schedule EIC to either Form 1040 or Form 1040A to
get the credit.

When and where to file your return. You can file your tax return any time
between January 1, 1993, and April 15, 1993. The earlier you file, the sooner
you will receive your payment. Mail your filled-in return and all attachments
to the Internal Revenue Service Center designated for the state or area where
you live. Use the addressed envelope that came with your return, or use one
of your own if you do not have the addressed envelope. If you do not have the
addressed envelope, or if you moved during the year, see Where Should I File?
in your Form 1040 instructions or Where Do I File? in Form 1040A instructions.

Advance Earned Income Credit Payments

Would you like to get your earned income credit now instead of waiting until
after the end of the year? If you work for someone and expect to qualify for
the earned income credit in 1993, you can choose to get the credit in advance.
Your employer will include part of the credit regularly in your pay.

Important Note. Only the basic credit for one child is payable in advance. You
cannot get advance payments of the credit for a second child, the extra credit
for a child born in 1993, or the health insurance credit.

Advance earned income credit payments received in 1992. If you received
advance payments of the earned income credit in 1992, you must file a tax
return to report the payments. Report the amount on line 52, Form 1040, or
line 26, Form 1040A. Your Form W─2, box 8 will show the amount you received.

Example. Gene and Mary White expect to file a joint return for 1992. Gene
earned $12,000 in 1992. Mary did not work but received $110 in interest from
her savings account. Because the Whites qualify for the earned income credit
and wanted to receive it in advance during 1992, Gene gave a Form W─5 to his
employer in 1992. If Gene wants to receive the advance credit in 1993, he must
fill out a 1993 Form W─5 and give it to his employer.

During 1992, Gene received $800 of advance earned income credit in his weekly
pay. This amount is shown in box 8 of Gene's 1992 Form W─2. The Whites must
file a return to report the $800. They file a joint return on Form 1040A and
enter the $800 on line 26.

The Whites have a son who was born during 1992 and lived with them for the
entire year.

When they file their return, they will claim the basic credit from Table A
in the instructions for from 1040 or form 1040A and the extra credit for
child born in 1992 from Table C. They subtract the $800 advance payment
from their total earned income credit. They also fill out Schedule EIC and
attach it to their tax return.

Persons who are not entitled to the advance credit. Under certain
circumstances, even if you meet the requirements for receiving the earned
income credit in advance, you may not be entitled to get it. If your wages
are not subject to Federal income tax, social security, or Medicare tax
withholding, you cannot get the advance payment of the earned income credit.
If you are a farm worker and are paid on a daily basis, your employer is
not required to pay you the advance amount of the credit.

How To Get Advance Payments for 1993

To get the credit in advance, you must fill out a 1993 Form W─5.

After you have read the instructions and answered the questions on Form W─5,
give the bottom part of the form to your employer. Keep the top part for your
records.

If you have more than one employer, give a certificate to only one of them.
If you are married and both you and your spouse are employed and expect to
qualify for the credit, you may give a Form W─5 to your employer and your
spouse may give one to his or her employer.

Important Note. If you receive advance earned income credit payments in 1993,
you must file Form 1040 or Form 1040A for 1993. This is very important. The
advance payment is limited only to the amount of basic earned income credit
for one qualifying child. If you have two or more qualifying children, a child
under 1, or pay health insurance premiums, your credit could be more than your
advance payment. You must file a return to report what you already received,
and you must file to take advantage of the additional credits in the earned
income credit that you may qualify for.

If you receive advance payments of the earned income credit and later find out
that you do not qualify for the credit, you will have to pay back any advance
credit you received when you file your Form 1040 or Form 1040A.

The 1993 Form W─5 you give to your employer is valid until December 31, 1993.
If you expect to qualify for the earned income credit in 1994 and you want to
receive advance payments, you must give your employer a new Form W─5 in 1994.
You do this each year you think you are eligible for the credit.

When to give your employer a new Form W─5. If your situation changes after you
give your employer a Form W─5, and you will no longer qualify for the earned
income credit, you must give your employer a new Form W─5. Check the NO box
in question 1 on the new form to show that you are not eligible to get advance
payments.

If your spouse files a Form W─5 with his or her employer, you must file a new
Form W─5 with your employer. Show in question 3 that your spouse has filed a
Form W─5.

If you no longer want to get advance payments of the earned income credit, you
must fill out another Form W─5 and give it to your employer. Check the NO box
in question 1 on the new form to show that you no longer want to get advance
payments.