Raising a child is a big job, we just don’t get paid for it. In order to qualify for EIC, you need to have what the IRS considers to be “earned income” which comes from a paying job.
The short answer is no. But I’ve had about 10 phone calls or emails this week with this question, or something similar anyway, so I figured I should post something about it so people will understand it better.
First, EIC stands for the Earned Income Credit (or some people call it EITC for Earned Income Tax Credit, they’re the same thing.) The key phrase here is “Earned Income”. You earn income from a job—like working at Target, or you might be self employed like me. I own my business so I don’t get a W2 but I still earn income.
Social security, welfare, child support, food stamps, VA benefits, SSI, and gifts from friends or family—none of those count as earned income. Neither does bank interest, stock sales or dividends, or rental income. As far as the IRS is concerned, these things do not count as “earned income” for EIC. (I know those Smith Barney commercials say they “earn” their income, but if you’re making money in a Smith Barney account—it doesn’t get you anything for EIC either.)
Alimony—does not count as earned income for EIC, but it does count as taxable income and can affect how much EIC you can get. Don’t confuse child support with alimony. Child support ends when your kids grow up. Alimony lasts forever or has an end date that has nothing to do with children. Most people get child support, alimony is pretty rare these days.
So if you have a job that gives you a W2—you’re set because the W2 proves your income. But if you’re self employed—proving your income is harder.
The IRS is demanding that tax preparers have proof of your self-employment income before we can file your EIC tax return. We’ll be fined for not having proper information. So if you don’t have good records of your income, you might get turned away by your tax preparer.
So the obvious question is—what records do you need to prove your income? The IRS has a list that includes the following: a business license, 1099MISC forms, records of gross receipts, income summary, expense summary, and bank statements.
The 1099MISC is really the best proof of income if you receive those. 1099MISC is given to anyone performing work for a small business that got paid over $600 during the year. If you’re like me, you don’t get 1099MISC forms. Most of the work I do is for individual people, not businesses so I need to prove my income another way. But I’m an accountant—I have all the bank statements and business records and a license to back up my income. It’s what I do for a living. Not everyone is going to have my kind of records.
What do you do if you just clean Mrs. Jones’ house for $50 a week? Or, maybe you helped paint Mr. Anderson’s garage for $200 last spring. It’s all cash, you’re just helping out. Those don’t seem like they’re really jobs but they are. If Mrs. Jones gives you $50 a week for the whole year, then that’s $2,600. Add Mr. Anderson’s $200 and you’ve got $2800. It’s not much but it’s something.
If you’ve been doing odd jobs like that, you’ll need to get some kind of documentation. Put it in writing and have the people you worked for sign it. In the future, you should keep a log of every place you work: the date, the location, the person you worked for, and the type of work you did.
You can’t make stuff up! That’s illegal. And remember, EIC returns with self-employment are an audit target—if you lie about this stuff there’s a really good chance that you’ll get caught.
But, if you really did work and you really do deserve to claim EIC, then you should be claiming it. You just need to make sure that you’ve got your documentation in order so you can prove it.
The IRS has a website full of information about EIC. Check it out: EIC Home Page
