The Earned Income Credit

The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to $6,269 for 2016 (the credit is inflation adjusted annually, for years other than 2016 call this office). So, you could pay less federal tax or even get a refund. The credit is a refundable credit, so you can receive the benefits of the credit even if you may not owe any taxes. That’s money you can use to make a difference in your life. 

Over 23 million taxpayers receive in excess of $45 billion dollars in EITC – making the credit a great investment in the lives of those who claim it. However, the IRS estimates that 20 to 25% of people who qualify for the credit do not claim it. At the same time, there are millions of Americans who have claimed the credit in error, many of whom simply don’t understand the criteria.

The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. If you have children, they must meet the relationship, age, and residency requirements. Additionally, you must file a tax return to claim the credit.

If you were employed for at least part of the year, you may be eligible for the EITC based on these general requirements (the rates shown are for 2016):

• You earned less than $14,884 ($20,434 if married filing jointly) and did not have any qualifying children.
• You earned less than $39,298 ($44,848 if married filing jointly) and have one qualifying child.
• You earned less than $44,648 ($50,193 if married filing jointly) and have two qualifying children.
• You earned less than $47,957 ($53,507 if married filing jointly) and have more than two qualifying children.

In addition, you must meet a few basic rules:

• You, and any qualifying child you claim for the EITC, must have a valid Social Security Number.
• You must have earned income from employment or from self-employment.
• Your filing status cannot be married, filing separately.
• You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien, and filing a joint return.
• You cannot be a qualifying child of another person.
• If you do not have a qualifying child, you must:
  
  
  o be age 25 but under 65 at the end of the year,
  o live in the United States for more than half the year, and
  o not be a qualifying child of another person.
• You cannot file Form 2555 or 2555-EZ (related to foreign earned income).

Members of the military can elect to include their nontaxable combat pay in earned income for the earned income credit. If you make the election, you must include in earned income all nontaxable combat pay received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, then each of you can make your own election. The amount of your nontaxable combat pay should be shown on your Form W-2 in box 12 with code Q.

If you have any questions, please give this office a call.

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