Earned Income Credit

Ok, Andy asked the question and I can't help but to respond. Especially if it is a matter of taxes or financial planning.
The Earned Income Credit (EIC) has been a part of the tax code as long as I have been preparing taxes - about ten years. Most of you have never heard of it because you earn over the income limit to qualify.
Think of a bell curve. If you earn very little you don't get any EIC. If you earn too much you don't get it either. In the middle you could get about $4,000 even if you don't owe any taxes. This is a refundable credit which means you get it even if you don't have any withholding or don't owe any tax. You just have to have earned income. It's like a hand out. No, it is a hand out. A non-refundable credit can only be taken against taxes owed.
You may be asking why Congress enacted the EIC. Why did the senators and representatives that YOU elected want to give some of the taxes you pay to low income people? Well, it was seen as an incentive for people to go to work. No earned income, no EIC. Then, I suppose, once they started to earn more and become mainstream workers the EIC is reduced. Can it be abused? Sure, just like any other tax regulation that has its primary purpose to effect social behavior.
Let's suppose I have a client who is a single mother with two children. She receives Social Security survivor benefits for herself and her two children because her husband had passed away. She has the ability to work but she chooses not to. I advised her that if she went to work and only earned about $14,000 that she would get another subsidy from the government in the form of $4,000 of EIC. Suppose she does that. Then she moves in with boyfriend who earns $40,000. My single mother client can still get the $4,000 EIC because it doesn't matter who in the household earns lots more money. Then my client tells me that she and boyfriend are planning to get married. Uh oh! With a combined income of $54,000 they would not qualify for the EIC. Zaap goes the $4,000 just by saying "I do." I advise my client not to get married.
Why would I give my client such advice? You would probably think that it would go against my political philosophy. Well, I have to act in the best interests of my client. That comes first in my professional life.
Suppose a single mom with two kids living with boyfriend doesn't have the ability to work. Well, she gets advice to come up with a bogus home business. It just so happens that she comes to me for the tax return and whatta you know, she has earned $14,000 from her home business. Strangely enough she doesn't have any expenses for this business. I emplore her to come up with some expenses to reduce the income to pay less tax. She keeps insisting that she has no expenses. She knows the rules of the game. She qualifies for the $4,000 EIC. This is a big red flag for us tax preparers. Most of the time people cheat by claiming less income than they earn or more expenses than they incurred. But, claiming income you didn't earn to qualify for the EIC is also tax fraud. What do I do? First you should know that low income people are not my target market. It is too much work for too little pay. H&R Blank can do a fine job for these people. I will politely tell her that I can't help her and direct her to the closest H&R Block office.