Someone who's lost her job can use all of the financial help she can get. Unemployment benefits provide a financial cushion for people who've lost employment. The Earned Income Tax Credit, or EITC, is a tax credit you might be able to get, too, based on your earned income and family size. Unemployment benefits aren't considered earned income, so they will not prevent you from getting the credit. But you must meet other Internal Revenue Service requirements to qualify for the EITC.
Earned Income Basics
Earned income is money you make from work you are paid to perform. If you made more than $51,567 in earned income in tax year 2013, you won't qualify for the EITC. If you made that amount or less, you can check further IRS requirements for your eligibility. To receive the credit, among the most important criteria are that you complete a federal tax return, have some earned income for the tax year, and have a valid Social Security number. If you qualify for the credit, you must specifically claim the EITC on your tax form.
While unemployment benefits are not considered earned income for purposes of the EITC, they are considered taxable income on your federal returns. You must include unemployment benefits as part of your gross income on your tax form, on line 19 of Form 1040, line 13 of 1040A, or line 3 of form 1040EZ.
IRS EITC income requirements can change each year, so it's important to check requirements for the tax year you are filing in. For the 2013 tax year, your earned income and adjusted gross income must both be less than $14,340 ($19,680 married filing jointly) with no qualifying children; $37,870 ($43,210 married filing jointly) with one qualifying child; $43,038 ($48,378 married filing jointly) with two qualifying children; and $46,227 ($51,567 married filing jointly) with three or more qualifying children. Examples of qualifying children are a daughter, son, stepchild, foster child and a dependent brother or sister. Other requirements include specific age requirements, and that the qualifying child must have lived with you for at least half the year. IRS Publication 596, Earned Income Tax Credit, provides more details.
Claiming the EITC
Filing your taxes takes paperwork. But to claim the EITC, you won't need to fill out a lot of additional paperwork unless you are claiming the EITC with a qualifying child. To claim the EITC without a qualifying child or children, fill out either IRS Form 1040, 1040A or 1040E. If you're claiming the EITC with a qualifying child, you must fill out and attach Schedule EIC to your tax return. The schedule provides required information to the IRS on your qualifying child or children.
The average EITC in 2012 was $2,300, according to the IRS. The amount of the credit you can get back varies based on the information you provide to the IRS on your income and family size. For example, for tax year 2013, taxpayers with no qualifying children are eligible for credits ranging from $2 to $487, while those with three or more qualifying children are eligible for credits ranging from $11 to $6,044.
Located in the mid-Atlantic United States, Elizabeth Layne has covered nonprofits and philanthropy since 1997, and has written articles on an array of topics for small businesses and career-seekers. An award-winning writer, her work has appeared in "The Chronicle of Philanthropy" newspaper and "Worth" magazine. Layne holds a Bachelor of Arts in journalism from The George Washington University.