- The earned income credit is a refundable credit given by the IRS to low and middle-income taxpayers. There are several factors that determine eligibility to receive credit, including filing status, number of dependent children and sources of income. Refundable credits can increase or create a federal tax refund even if you do not owe tax or are not required to file a tax return.
- Earned income determines the EIC. Unemployment is not considered earned income, however, income from other sources, such as wages or self-employment fall into that category. If you earned money from sources such as these, your unemployment will not be considered in the initial EIC calculation, but you may still be able to receive the EIC based on the amount of your other income.
- In addition to the earned income calculation, the IRS bases your EIC on your adjusted gross income. You will receive the EIC associated with either the earned income, or the adjusted gross income, whichever renders the lowest amount of earned income credit. Each year, the IRS publishes EIC tables that list the amount of credit available based on these factors and your filing status. If you have dependent children, the credit increases for each child. The IRS figures unemployment compensation into the adjusted gross income, so your EIC amount will change based on the amount of unemployment you receive.
- If the only compensation received during the year is unemployment, you won't qualify for the EIC, but you may qualify for other IRS refundable credits. For example, if you elect to have federal taxes deducted from your unemployment, you may qualify to receive a refund of a portion of the amount withheld. If you receive earned income and unemployment and have dependent children, you may also qualify for other child credits, such as the child tax credit and dependent care credit. If you're due an IRS refund, you must file your return within three years from the original due date to receive your check from the IRS.
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