Tax question: Earned Income Credit

Factual Questions
1

Ok, I got my W-2 yesterday, and sat down with my tax forms, figuring on a simple process. Only, it turns out that I technically qualify for the EIC (not much, about a $360 credit), since my income was so low last year - less than $5k. Basically, I’m trying to figure out if it’s worth it to take the credit.

I’ve been looking through the IRS website, and I found this that sort of outlines the EIC program, but I still have a couple of questions that I have not yet found the answer to.

  1. If I take the EIC, is it paid as part of my refund or some other way?

  2. How does it affect my 2004 tax filing? I don’t expect to qualify for EIC when I file my taxes for this year, since I will finish grad school and once again have a full time job. Will it be something that I need to declare as part of my income next year if I take it?

  3. Is there anything else I need to know about the EIC?

2

  1. It will be included in your refund

  2. I don’t think it will effect your 2004 taxes in any way. Even if it is somehow taxable, you will still be better off taking it now.

  3. Double check to be sure that you are genuinely eligible. If you are claimed as a dependent on someone else’s return, you might not be able to take it for example.

3

  1. It is not taxable, it is a gift to those of lower income levels given to us by Uncle Ronnie when he was the prez. It is based on a sliding scale that starts at zero, hits its max at about $9000 and taper back down to about $20,000. It added almost $1500 to my daughter’s return. Spend it and enjoy.

  2. It is your money, take it.