The Earned Income Tax Credit (EITC): Changes for 2012 and 2013 Page: 4 of 6
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The Earned Income Tax Credit (EITC): Changes for 2012 and 2013
Calculation of the EITC
Qualifications for, and the amount of, the earned income tax credit (EITC) depend on the amount
of earned income, adjusted gross income (AGI), and whether the tax filer has a qualified child.
For the EITC, a qualified child is determined by the definition of a qualified child for the personal
exemption. In general, for the personal exemption for a dependent, an individual is either a
qualifying relative or a qualifying child. A qualified child for the EITC must meet the following
three criteria for the personal exemption:
" relationship-the child must be a son, daughter, stepson, stepdaughter, or
descendent of such a relative; a brother, sister, stepbrother, stepsister, or
descendent of such a relative; an adopted child; or a foster child placed with the
taxpayer;
" residence-the child must live with the tax filer for more than half the year; and
" age-the child must be under the age of 19 (or age 24, if a full-time student) or
be permanently and totally disabled.
For the EITC, a qualified child cannot be married and must have a principal place of abode
(where the child lives with the tax filer) within the United States (an exception exists for military
personnel stationed overseas). A custodial parent may have a qualified child for the EITC without
using other tax benefits associated with the child (such as the personal exemption) because the
EITC disregards a waiver of the personal exemption and the child tax credit to a noncustodial
parent.
In general, the EITC amount increases with earnings up to a point (the maximum earned income
amount), then remains unchanged (at the maximum credit) for a certain bracket of income, and
then, beginning at the phase-out income level, gradually decreases to zero as earnings continue to
increase. A family will be disqualified from receiving the earned income credit if investment
income exceeds a specified level.
The maximum earned income amount, the phase-out income level, and the disqualifying
investment income amount are indexed for inflation. For married couples filing a joint tax return,
in tax years 2002 through 2004, the phase-out level was $1,000 higher than for other filers. In tax
years 2005 through 2007, the phase-out level was $2,000 higher, and beginning in tax year 2008,
the phase-out level was $3,000 higher. The American Recovery and Reinvestment Act of 2009
(ARRA; PL. 111-5) increased this differential to $5,000 for tax year 2009, and adjusted for
inflation in 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation
Act of 2010 (P.L. 111-312) extended the ARRA provisions for marriage penalty relief through tax
year 2012. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) extends the ARRA
provisions for five years (through tax year 2017). The phase-out level for married couples filing a
joint tax return was $5,210 higher than for other tax filers in tax year 2012, and will be $5,340
higher than for other tax filers in tax year 2013.
To make it easier for tax filers to determine the correct amount of the credit, a table for the earned
income credit is included in the income tax booklet based on $50 increments of income. Table 1
shows the parameters for the EITC (credit rates, phase-out rates, maximum earned income
amount, maximum credit, phase-out income level, and disqualifying investment income level) for
tax years 2010, 2011, and 2012.Congressional Research Service
1
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Scott, Christine. The Earned Income Tax Credit (EITC): Changes for 2012 and 2013, report, January 31, 2013; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc806443/m1/4/: accessed May 29, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.