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Earned Income Credit (EIC)

General Rules

A refundable earned income credit is available to certain low-income individuals who have earned income and meet federal requirements for the federal earned income credit. Taxpayers must qualify for and claim the federal earned income credit allowed under Internal Revenue Code § 32 as amended and in effect for the taxable year. Taxpayers may claim the credit even though they neither owe any taxes nor have any income taxes withheld from their pay. To receive the credit, taxpayers must file tax returns and claim the credit. The Massachusetts refundable credit is 15% of the computed federal credit.

The IRS provides DOR with its Earned Income Credit table showing maximum federal adjusted gross income, number of qualifying children and maximum EIC. The IRS credit is based on federal modified adjusted gross income; the DOR credit is based on the Federal credit.

Married filing separate taxpayers do not qualify for EIC.

Eligible Taxpayers:

any taxpayer who has a qualifying child for the taxable year; or
any other taxpayer who does not have a qualifying child for the taxable year if all of the following criteria are met:

the taxpayer lived in the United States for more than one half of the taxable year;
the taxpayer or the taxpayer's spouse has attained age 25 but not attained age 65 before the close of taxable year; and
the taxpayer is not a dependent of another taxpayer during the taxable year.

Investment Income:
An individual is not eligible for the earned income credit if he or she has "investment income" exceeding certain thresholds. Investment income includes capital gain net income, net passive income, interest, dividends, tax exempt interest and non-business rents and royalties. (See U.S. Publication 596, 2002) For 2009, investment income must be $3,100 or less for the year.

Advance Earned Income Tax Credit:
The maximum Advance Earned Income Tax Credit (advance EITC) for 2008 the employer is allowed to provide throughout the year with the employee's pay is $1,750.

Federal Computation of Earned Income Credit:

taxpayers who choose to have the IRS compute their federal earned income credit should wait until the IRS notifies them of that amount before claiming the credit on the Massachusetts income tax return. If they have not received the federal earned income credit amount as computed by the IRS by the deadline for filing Massachusetts tax return, they may file a Massachusetts Form M-4868, Application for Automatic Six-Month Extension of Time for File Massachusetts income tax return.
If the IRS computes the EIC for eligible taxpayers who did not take the credit on their Massachusetts returns, they can file Massachusetts Form EICA to receive 15% of the federal credit. Taxpayers who did take the credit but need to amend for an increase or decrease based on an IRS adjustment should use Telefile Amended or file Massachusetts Form CA-6.

Maximum 2009 credit

For Single and Head of Household:

Maximum Federal Adjusted Gross Income

Number of Qualifying Children

Maximum Federal EIC

MA Rate

Maximum MA Credit Allowed

$13,440

$457

15%

$68.55

$35,463

$3,043

15%

$456.45

$40,295	2	$5,028	15%	$754.20
$43,279	3 or more	$5,657	15%	$848.55

For Married Filing Joint:

Maximum Federal Adjusted Gross Income

Number of Qualifying Children

Maximum Federal EIC

MA Rate

Maximum MA Credit Allowed

$18,440

$457

15%

$68.55

$40,463

$3,043

15%

$456.45

$45,295	2	$5,028	15%	$754.20
$48,279	3 or more	$5,657	15%	$848.55

Nonresidents and Part Year Residents Who Have No Income Earned In Massachusetts

For part-year residents: Massachusetts does not require part-year residents to have Massachusetts source income in order to be eligible for the Massachusetts EIC. Part-year residents can claim the earned income credit ("EIC") by prorating the federal EIC by the number of days a Massachusetts resident over 365 days.
For nonresidents: Unlike part-year residents, nonresidents must have Massachusetts source income in order to claim the Massachusetts EIC. The credit applies only with respect to that portion of earned income of nonresidents that is derived from Massachusetts sources.The credit is limited to 15 percent of the federal credit multiplied by a fraction the numerator of which is the earned income of the nonresident from Massachusetts sources and the denominator of which is the earned income of the nonresident from all sources.

Same-Sex Joint Filers:
For Massachusetts state income tax purposes, beginning on or after May 16, 2004 Massachusetts recognizes the right of same-sex couples to be married. Same-sex spouses will file as married persons, and have the option of filing either Massachusetts joint returns or married filing separate returns. Massachusetts will recognize valid same-sex marriages for tax periods that end on or after May 16, 2004, but will not recognize same-sex marriages for tax periods ending prior to May 16, 2004.

Same-sex spouses must recalculate their federal EIC credit as though they were joint filers for federal purposes, and derive the Massachusetts credit from the resultant figure. Thus, the credit calculation will not just be a simple percentage of the amount filed federally on the taxpayers' individual returns.

Where to Report on Original Tax Return; What to Enclose:

Enter the number of qualifying children, if any, in the box on either Mass Form 1, Line 40a or Form 1-NR/PY, Line 45a, and in the box next to Line 40a or 45a, enter the amount reported on either U.S. Form 1040, Line 64a, U.S. Form 1040A, Line 41a, U.S. Form 1040EZ, Line 9a, or U.S. Telefile Tax Record, item L. Multiply the U.S. amount by .15 and enter the result in Form 1, Line 40 or Form 1-NR/PY, Line 45.
Part-year residents must multiply the amount by Form 1-NR/PY, Line 2, Total days as Massachusetts resident, since this deduction must be prorated based upon the number of days a taxpayer is a Massachusetts resident. Enter the result on Mass Form 1-NR/PY, Line 45.
Nonresidents must then multiply the amount by Mass Form 1-NR/PY, Line 14g, Nonresident Deduction and Exemption Ratio, since this deduction must be prorated based upon the amount of the taxpayer's Massachusetts source income to his/her total income. Enter the result on Mass Form 1-NR/PY, Line 45.

Documentation to Submit with Abatement/Amended Tax Return:

Social Security numbers for yourself, your spouse and any qualifying children;
Copy of U.S. Schedule EIC - Earned Income Credit (Qualifying Child Information).

Massachusetts References:

M.G.L. Chapter 62, Section 6(h) as amended by St. 1999, c. 127, ss. 79, 379
TIR 08-11: An Act Relative to Tax Fairness and Business Competitiveness
TIR 04-17: Massachusetts Tax Issues Associated with Same-Sex Marriages
TIR 99-19: Tax Changes in the Fiscal Year 2000 Budget, Other Than Capital Gains and "Pay to Play" Provisions

Federal References:

I.R.C. Section 32
Revenue Procedure 2007-66
U.S. Publication 596

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