Tuition and Fees Deduction increasing EIC

[KBTS]

Clients are married and in graduate school - they have no children. Both have previously used 4 years of the AOC. Their income was low enough that their standard deduction and personal exemptions take their taxable income to $0; therefore, the Lifetime Learning Credit does not help them. They qualify for a small amount of EIC.

If I take the tuition and fees deduction, their AGI becomes less than their earned income and this increases the EIC. I have never had this happen before and I am questioning whether my software is handling this correctly. I cannot find anything in Pub 596 regarding this and am wondering if this is correct.

[Koss]

Earned Income Credit

The calculations are correct. A traditional IRA contribution could have the same effect.

In some cases, the amount of EIC is determined based on the taxpayer's earned income. In other cases, the amount of EIC is determined based on the taxpayer's AGI. The EIC worksheet tells you which one to use.

Earned income has a very technical definition in this context. It is calculated on a different worksheet, and there are certain things that are not included, such as a taxable scholarship (even though it is reported on line 7).

But AGI is AGI. The EIC worksheet simply tells you to use the figure from line 38, and that's how it works.

Any other adjustment, such as moving expenses or student loan interest, can also have the effect of increasing EIC.

BMK