Learn About Indiana's Earned Income Tax Credit

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The Indiana earned income credit has been around since 1999, but the state changed it to mirror the terms of the federal credit in 2003. It's intended for low-income working families and individuals and is refundable. If your credit is more than the taxes you owe, you'll receive the difference in cash. 

Earned Income Credit Eligibility in Indiana

Taxpayers must be eligible for and claim the federal earned income credit on their federal tax returns to qualify for Indiana's EITC, and most of the rules for Indiana's credit are the same as at the federal level. Taxpayers must have earned income -- they work for an employer or for themselves in their own businesses. Income cannot be foreign.

Taxpayers must have valid Social Security numbers and be U.S. citizens or resident aliens throughout the entire year. A nonresident alien can qualify if married to a U.S. citizen or a resident alien and the couple files a joint married return

Filing a separate married return prevents you from claiming the federal EITC. You can't claim the credit if you're the qualifying child of another taxpayer -- someone such as your parent can claim you as a dependent. 

Other Income Requirements for Indiana's EITC 

Your federal adjusted gross income earned income and modified adjusted gross income must be less than certain limits to qualify you for Indiana's earned income credit. As of the 2015 tax year, the following thresholds apply.

  • $47,747 if you have three or more qualifying children, increasing to $53,267 if you're married and file a joint return
  • $44,454 if you have two qualifying children, increasing to $49,974 if you're married and file a joint return
  • $39,193 if you have one qualifying child, increasing to $44,651 if you're married and file a joint return
  • $14,820 if you have no qualifying children, or $20,330 if you're married and file a joint return

Rules for Qualifying Children 

A qualifying child must be younger than age 19 on the last day of the tax year, or age 24 if he is a student. He must have lived with you for more than half the tax year. Time spent away at college is not considered living away from home.

He must be your child, stepchild, grandchild or great-grandchild. He may also be your sibling, half-sibling, step-sibling or a descendant of one of these relatives. Indiana has special rules for foster children, so if you're considering claiming a foster child for purposes of claiming the earned income credit, check with a tax professional first to make sure you qualify. 

If he's married, he cannot have filed a joint return with his spouse unless it was only so they could claim a tax refund. 

The Amount of the Credit

Indiana's credit cannot exceed 9 percent of your federal EITC, and it can be reduced by 9 percent of any alternative minimum tax you may owe. 

How to Claim the Indiana EITC

Complete and attach Schedule IN-EIC to your Indiana tax return.

NOTE: State and federal laws change frequently and the above information may not reflect the most recent changes. Income thresholds are current through 2015 and can be expected to increase somewhat annually. Please consult with an attorney or tax professional for the most up-to-date advice. The information contained in this article is not intended as legal advice and it is not a substitute for legal advice.