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How to Avoid Errors on EITC Notices & Letters

How to Avoid Errors on EITC Notices & Letters

The Earned Income Tax Credit (EITC / EIC) is a scheme to lower the taxes owed by low to moderate-income earners. The EITC, which stands for Earned Income Tax Credit, is refundable but, on average, $2,504. The program works in a way that some taxpayers may get a refund on their taxes. However, the scheme places some requirements for taxpayers to fulfill before they can enjoy the benefit. 

In 2019, the IRS issued over $61 billion in EITC notices and letters to over 25 million families and workers concerning the errors on their tax returns. The EITC letters and notices are in different forms, such as IRS Notice CP74, IRS Notice CP09, and IRS Notice CP27.

 

Basic EITC Rules

The refundable credit is on Sec. 32 EITC. The section subsidizes the tax rates of low-income taxpayers. However, it would be best if you met the below criteria to qualify for the subsidy. 

  • You must be a U.S citizen or a foreigner but have resided in the state for more than a year and have Social Security Number,

  • You must receive income,

  • File taxes using either married filing jointly, single, or head of household.

  • You do not qualify as someone’s child; and 

  • Do not have investment income larger than the entry amount.

The program is also open to taxpayers with no children, but the benefits are limited. However, you can enjoy larger credit if you have one or more kids. There are details to understand before considering yourself to qualify for the credit. 

The IRS calculates the EITC by multiplying the taxpayer earnings by a percentage, as stated in Sec. 32(b). The taxpayer’s income level determines the refundable credit.


Common Errors on EITC Notices and Letters

You are responsible for filing your tax returns, and whatever is seen on your tax return is presumed to be your doing. Many errors are commonly seen on the notices. Understanding these errors, a taxpayer can make when filing a claim on Earned Income Tax Credit (EITC) will help him, or her avoid them. If the IRS finds some errors on your tax return, they may take one of the following actions:

  • They may delay your tax refund

  • They may request an audit of your EITC claim

  • They may deny all or part of the claim


5 Common Errors You Need to Avoid

Your Child Doesn’t Qualify

There are rules for your child's claim to be considered, and most taxpayers may miss the regulations:

  • Relationship: you must have a relationship with such a child.

  • Residency: the child may have lived with you for more than half a year.

  • Age: the qualification may be affected by your child’s age and student or disability status.

  • Joint return: your child must not collaborate with another person, like your spouse, to file a joint return to claim the credit.


More than One Person Claimed that Child

The child in question must have spent more than half the tax year with you.

Social Security Number or Last Name Don’t Match

Ensure the Social Security Number and name correspond with the format written on the social security card.

Married and Filed as Single or Head of Household

Married people that use the single filing status are not qualified. You can’t also claim the credit with the head of household filing status if you’re married and your qualified child has lived with your spouse for more than six months. So, stick to the correct filing status.

Over or Under Reporting Your Income or Expenses

You must include all the forms, such as W-2, W-2G, 1099-MISC, 1099-NEC, and all your earned income for the year.

Also, the IRS expects you to include all income records, even if they are missing from the IRS form. You are to file all income earned from a business or farm, and you can make all legal deductions.


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