The Earned Income Tax Credit is a unique tax credit that is specifically given to taxpayers who earn low to medium wages. The credit was first introduced in 1975 in an effort to reimburse low income earners for the relatively higher percentage deduction for Social Security tax. The Social Security contribution has a certain limit on the amounts taxed and so, individuals with high income pay a relatively lower rate for Social Security as opposed to low income earners. In a bid to compensate all the low income earners, Congress quickly passed the EITC and it became practical ever since its instigation. There are many different rules that actually govern the qualifications of the Earned Income Tax Credit (EITC), which are clearly detailed below:
For a taxpayer to qualify for Earned Income Tax Credit, he or she must have been making some form of earned income actively as opposed to passive income. Well, earned income basically includes wages, salaries, commission, tips, or even self-employed incomes. The credit is always an incentive for an individual to actively work. Distributions from unemployment benefits, Social Security, pensions, and even interests from savings will therefore not qualify (simply because they are not earned incomes). Any taxpayers who earn any kind of foreign income will also not be suitable for the Earned Income Tax Credit.
The EITC also applies for taxpayers who do not really have any tax liabilities. This therefore means that the taxpayer can easily get a tax refund for this particular credit. For taxpayers who may possibly be having an outstanding tax liability, they can decide to offset all the credit against such liabilities.
The Earned Income Tax Credit is particularly paid to taxpayers who actually earn an income that is below a given threshold. And the credit amount normally increases as the income gets lower which simply means that the lowest income earner gets the highest amount of credit. The amount of EITC that an individual is due also greatly depends on the total number of children or rather dependents that the applicant has. The highest amount of credit that an individual can get is about $6,660.00 for applicants who have more than 3 children, a total of $5,920.00 for 2 children, those with one child get about $3,584.00, and $538.00 is for applicants that have no children.
Taxpayers who are applying for the EITC must have a Social Security number. A married couple that decides on filing separately cannot actually qualify for the Earned Income Tax Credit. You must also note that qualified dependents are not eligible for the EITC. The credit is strictly available to resident aliens, citizens, and non-residents that are married to citizens.
Before 2011, all eligible employees could have the credit paid in reasonable installments throughout the entire year as opposed to getting all the payment at once when one is filing tax returns. However, from the year 2011 out, the installment payment of EITC, also commonly referred to as advanced EITC, was completely scrapped.
For an individual to qualify for the Earned Income Tax Credit, they must be between the age of 25 and 65 by the end of the tax year. It is also important that the taxpayer must have been the country (United States) for at least half of the tax year.
If you want to calculate the amount of the EITC that you are lawfully entitled to, you can simply use the EITC assistant on the IRS website. Afterwards, you can claim the credit on line 64A of the tax Form 1040EZ, 1040, or even 1040A. If you feel this is something you can’t comfortably handle then it is advisable to seek the services of a tax accountant.
Let’s now shift gear and take a closer look at married couples.
Married and Filing For the Earned Income Tax Credit:
When trying to meet all the requirements for the earned income tax credit (EITC) you or even your spouse must pass the age test when filing a joint tax return. It is vital to note that you cannot be a dependent of another taxpayer, and are not an eligible child of another taxpayer.
If you are married and filing a joint tax return you must make sure your social security number and that of your spouse is included on your IRS tax return. Like I mentioned earlier, married couples filing separate returns are not qualified for the earned income tax credit. If you are legally married, but your partner was not in the country for the last 6 months of the year, you may be allowed to file as head of the home and take all the credit. If you are lawfully married and file a joint tax return, you only meet this rule when at least one spouse is working and has earned income.
Those who are not married and have not been earning income for the year, are not eligible. Additionally, you may only be able to claim the credit as head of the home if you and your spouse lived separately for the last half of the tax year.
If you are a couple and are looking to benefit from Earned Income Tax Credit, it is wise to engage a competent tax preparer like Daniel P. Vigilante CPA And Profit Consultants, who will take you through the whole process.
Are there any other types of earned income credit?
In the United States, your filing status greatly defines the income levels for your federal tax bracket. Moderate and low income families may easily qualify for one or even more of 3 federal tax credits. The Earned Income Credit, the Child Tax Credit, and also the Child and Dependent Care Credit. The Child and Dependent Care Credit is always distinct and greatly differs from the other two credits. If let’s say your family earns too little to comfortably pay federal income taxes, then you cannot be allowed to take the Child and Dependent Care Credit. The main reason behind this is because if you are not qualified to pay any taxes the government will definitely not give you money back.
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