What is the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a tax credit for taxpayers with low to moderate income, especially those with children. Read on to find out if you qualify for the EITC.
How do I qualify?
You (and your spouse if filing jointly) must be a U.S. Citizen or resident alien
· If married, you and your spouse cannot file separately (MFS)
· You must have earned income from an employer or from a self-employed business or farm
· Your investment income must be $3500 or less and you cannot have filed Form 2555, Foreign Earned Income
· Your income must be under certain limits that depend on whether you have children or not
· If you’re claiming the credit with a child, the child must meet certain requirements to be a qualifying child. See the rules for a Qualifying Child below.
· To claim the credit without children:
- You must be at least 25 but under 65 years old by the end of the tax year
- You cannot be claimed as a dependent by another person on their tax return
- You must have resided in the U.S. for more than half the year
There are also additional requirements regarding children that you claim on your tax return. Read here to find out for sure if you’re eligible.
The IRS has consequences for claiming the EITC in error. Make sure you have documentation to support that you are eligible to claim the credit, especially with qualifying children. Documents can be health or medical records that show the children lived in your household.
- Must have a valid SSN that was issued before the original due date of the return including extensions. Adoption taxpayer identification numbers (ATINs) and individual taxpayer identification numbers (ITINs) do not count.
- The child must have lived with you for over half the year. You can count time that your child was temporarily away from home, such as for school, vacation, military service, etc. There are special rules for children who are born and die during the same tax year and kidnapped children. Contact a tax professional if you’re not sure.
- The child must be your son, daughter, adopted child, stepchild, foster child, brother, sister, half-sibling, step-sibling, or a descendant of any of them (grandchild, niece, or nephew). There are special rules for married and foster children. Contact us for questions.
- The child must be younger than you or your spouse if you file jointly and also be:
- Under 19 at the end of the tax year OR
- Under age 24 at the end of the tax year if a full-time student OR
- Any age if permanently and totally disabled
- The child, if married, cannot have filed a joint return with their spouse, unless they filed jointly only to claim a refund of withheld or estimated taxes.
- If the child can be the qualifying child of more than one person, you must have proof of why you’re eligible to claim the child and must generally follow the tie-breaker rules.
What Are the Benefits?
Depending on your income and the number of qualifying children you claim, the EITC is a credit between $519 – $6,431. The best part about this credit is that it’s refundable. After it reduces your tax liability to zero, or if you don’t owe any taxes, it’s extra money you can receive.
If you have questions about the EITC, or are in need of tax help, contact us and we’ll help you get started on the right path!