The Earned Income Credit
The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to over $5,700 for 2011. 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 $45 billion dollars in EITC – making the credit a great investment in the lives of those who claim it. However, the IRS estimates 20 to 25 percent 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 2010; 2011 rates were not available at the time this article was prepared):
• You earned less than $13,454 ($18,464 if married filing jointly) and did not have any qualifying children.
• You earned less than $35,546 ($40,546 if married filing jointly) and have one qualifying child.
• You earned less than $40,386 ($45,386 if married filing jointly) and have two qualifying children.
• You earned less than $43,311 ($48,311 if married filing jointly) and have more than two qualifying children.
In addition, you must meet a few basic rules:
• You 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.