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Earned Income Credit: How it Works?

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How does the earned income credit work? Where is the income from the credit coming from?

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Solution Summary

This solution shows how to compute earned income credit and who are qualified as mandated by the US Internal Revenue Service.

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The IRS (2010) defines earned income credit as "a tax credit for certain people who work and have low wages".

According to the IRS, Taxable earned income includes Wages, salaries, and tips, Union strike benefits, Long-term disability benefits received prior to minimum retirement age, and Net earnings from self-employment.

The following figures from the IRS (2011) gives us a clear idea of ...

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