Posted by Valderas Financial Solutions LLC

Things That Can Disqualify You For Earned Income Credit

Things That Can Disqualify You For Earned Income Credit

The EITC (Earned Income Tax Credit) is a benefit available to low- and middle-income workers. The EITC reduces the amount of taxes due and may give rise to a refund. The earned income credit (EIC) was designed to compensate Social Security tax by encouraging people to work.

Here are the ten most important things to know about the Earned Income Credit:

Who Is Eligible For The Income Credit

To qualify for the EITC, you must have earned income and, if you have no children, you must have worked or operated a farm or business and earned less than $20,430 in 2016.

All applicants must:

  • Have earned income; and
  • Be a U.S. or foreign national residing during the fiscal year; and
  • You have a valid Social Security number for you, your spouse and your eligible children on your statement.

1. If you have a kid, the child must comply with all the rules of the qualifying child. What does it mean? The child must meet all the requirements of the IRS to be able to rely on the tax, including the social security number assigned before the expiry of the income tax return, and must also:

  • Relationship: He/she must be your daughter, son, adopted child, step-child or descendant of one of them, as a grandchild.
  • Age: The Kid must be younger than you and be under age19 at the end of the year of presentation or under 24 and be a full-time student. Also, the child can be of any age and suffer from permanent and total disability.
  • Residence: Your child must live with you or your spouse if you return to the United States for more than six months.
  • Joint return: The child cannot make a joint return unless the child and his/her spouse have a separate claim and do not file the return only for the refund.

2. Wage Limits to Qualify for the Earned Income Credit

Your Income earned, and adjusted gross income (AGI) cannot exceed: 

If filling
Claiming 0 children
Claiming 1 child
Claiming 2 children
Claiming 3 children
Single head of household and widow
$ 15,010
$ 39,617
$ 45,007
$ 48,340


Married to a common return
$ 20,600
$ 45,207
$ 50,597
$ 53,930


Members of the forces are not required to report non-taxable payments as income earned by the EITC. Examples include combat allowance, basic shelter allowance and basic living allowance. You can choose to include the non-taxable payment as this may reduce the amount of tax owing and give you a higher refund. You must calculate your combat tax as you earn income and compare it to determine what gives you the best performance.

Do you think you have lost out on earned income credit in previous years? The IRS has an EITC Assistant who can help you determine your eligibility for the last fiscal year and prior years.

3. Asset Income Can Disqualify You from the Earned Income Credit

If you have more than $3,450 in income from rent, inheritance, or stock dividends, you will not receive EITC. That means any inheritance over $3,450 will disqualify you.

4. Self-Employed persons Can Apply for the Earned Income Credit

The IRS reviews all income earned to determine eligibility for the EITC. This includes income and wages from self-employment activities and tips on other types of wages. Long-term disability benefits and strike pay for unions also apply. If you have your own business, these incomes are also valid.

Types of income that do not apply include child support, retirement income, alimony, unemployment benefits and social security benefits. The earning from working in prison does not apply either.

5. Ages to eligible for the Earned Income Credit

As long as you are between 25 and 65 years old on December 31st of the fiscal year, you can benefit from the  Earned Income Credit. Here are the guidelines for the date of birth:


    • You should have been born on or after January 1st, 1953; and
    • be born on or before December 31st, 1992; and
    • It is not possible to depend on someone else's tax return.

6.  How to Claim the Earned Income Credit

You must file a tax return to apply for the EITC. If you have an eligible child, you must submit the EIC Schedule including your children, as well as Form 1040A or Form 1040. If you do not have a qualified child, submit Form 1040EZ, 1040A or 1040.

Here are some of the documents to prepare:

  • Social security cards
  • Birthdays for everyone on the return
  • Copies of federal and state returns from last year
  • All income statements, including W-2 and 1099 modules
  • All expense records, such as tuition fees and property taxes.
  • Submit forms such as 1095-A, 1095-B or 1095-C
  • Route numbers and account numbers so you can file the refund directly
  • The names of your children and information for paid caregivers.

7. Tax Software Can Help with Claiming the Earned Income Credit

There are tax program systems that can help you determine your eligibility for EITC. This software often helps you correctly calculate your income and take into account all inclusions. The free file is one of those features that allow you to get free federal taxes. Pay attention to the preparer who will take your money and prepare your statement, but try to defraud the system. There are fines for being dishonest or fraudulent in tax returns.

8. Errors Can Cause You to Lose Access to the Earned Income Credit

If you were dishonest in your tax return, you could lose your access to the EITC in the coming years. The IRS system complies with the EITC rules and may revoke access fraudulently or circumvent the rules in any way. This limitation can take two years and even be sanctioned if the loan is refused for a maximum of 10 years. This does not apply to mathematical errors.

9. The IRS can contact you about the Earned income credit

You may receive a letter indicating that you are eligible for EITC for you to file a claim. The IRS may also ask you to provide information to verify the EITC's request or to provide additional information about the complaint. Check the letter/warning notice to determine what you need to do if you receive an IRS alert.

10. Timeline for Receiving your Refund from the Earned Income Credit

The EITC declaration of the tax return means that the IRS must retain the refund until mid-February, which includes the non-EITC portion. You can monitor your refund using a tool or in the IRS2Go app.

The maximum amounts of credit or tax year 2017 are as follows:


    • $6,318 with three or more eligible children
    • $5,616 with two eligible children
    • $3,400 with a qualified child
    • $510 without qualified children

Many people are unaware of the Earned Income Credit, considering that they are not eligible. This is not usually the case, and people lose hundreds and sometimes thousands could receive them with their tax returns. By carefully examining the circumstances, it is possible to assess whether you qualify for an income loan or not.

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