Tax Resources

Earned Income Credit Guidelines

Below are earned income credit guidelines for tax professionals and taxpayers. Follow the earned income credit guidelines below to avoid penalties of falsely claiming earned income credit (EITC or EIC).

What is the earned income tax credit or EITC?

The Earned Income Tax Credit (EITC), also known as the Earned Income Credit (EIC), provides a wage supplement to low-income working families and individuals. Earned income tax credit is a refundable tax credit.

Guidelines on how to qualify for earned income credit

To qualify to claim the earned income credit, the taxpayer must meet certain rules and file a tax return.

Will claiming earned income credit reduces my other benefits from the government?

The earned income tax credit has no effect on other federal benefits. In most cases, earned income credit payments will not be used to determine eligibility for:

  • Medicaid,
  • Supplemental Security Income (SSI),
  • food stamps,
  • low-income housing or most Temporary Assistance for Needy Families (TANF) payments.
What are the penalties for tax preparers?

Failure to comply with earned income credit due diligence requirements will lead to a fine of $100 per tax return for tax preparers. If the tax preparer is reckless in claiming the earned income tax credit and willfully disregard the tax laws, then the penalty for the preparer can go up to $1,000 plus injunction action.

What are the penalties for taxpayers?

Willful disregard of the tax laws when earned income tax credit is concerned will not only cost the tax preparer penalties but the taxpayer will also be penalized. Penalties for taxpayers include:

  • 20% of underpayment of tax
  • 2 year ban from claiming the Earned income credit

If the earned income tax credit claim is a fraud, then the penalties are:

  • fraud penalty
  • 10 year ban from claiming the earned income credit

Tax Questions