What Does Earned Income Credit Mean on the 1040EZ?
Many taxpayers filling out the 1040 or 1040EZ comes across the term earned income tax credit for the first time and ask the question 'what does earned income credit mean on the 1040EZ or 1040 form?'
The 1040EZ is the federal income tax form for Income Tax Return for Single and Joint Filers with No Dependents and it is supposed to be the easiest federal income tax form to fill out. However, some questions on the 1040EZ still make the taxpayers scratch their head.
Filling out the 1040EZ
Under Income on the 1040-EZ, everything is pretty straight forward. Taxpayers have no problems entering wages, interest income, unemployment compensation and calculating adjusted gross income. Line number 5 of the 1040EZ starts to make taxpayers frown. Line 5 asks if someone can claim the taxpayer or his or her spouse in a joint return as a dependent then check the box and enter the amount from the worksheet on the back.
It is actually quite complicated to figure out if someone is a dependent of someone else or not. So, even though the taxpayer and his or her spouse if married filing jointly do not have children, they themselves can be dependents of their parents or anyone else who support them in some ways. To answer question number 5 on 1040EZ, the taxpayer must know the definition of what a dependent is. The taxpayer may have to consult the IRS publication 501 to figure out the answer to the dependency questions.
What does earned income credit mean on the 1040EZ form?
Then there is box number 8 which asks about earned income tax credit or EIC. The earned income tax credit is the amount of money the IRS gives certain low income taxpayers who work. If you are qualified for earned income tax credit, you will have money in your pocket directly from the IRS without having to go through tax deductions and other loopholes. All taxpayers should try to see if they qualify for earned income tax credit. See Who qualifies for earned income credit section.
If the taxpayer thinks he or she qualifies for earned income tax credit, he or she can use the 1040EZ booklet to figure out the amount of earned income tax credit. You can either calculate the earned income credit for yourself and your spouse if married filing jointly or you can have the IRS figure the earned income credit for you if you qualify. Do not ask the IRS to calculate the earned income credit if you are not sure if you qualify or not. If you are calculating the earned income credit yourself, you can use the earned income credit table which is also in the 1040EZ instructions booklet. The calculated earned income credit amount will be entered on the front page of tax form 1040EZ.