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Posted by Tiffany Gaskin

Things That Can Disqualify You for Earned Income Tax Credit

Things That Can Disqualify You for Earned Income Tax Credit

If you're a low-income worker, or your income has considerably reduced over the years, you're entitled to a refundable tax credit known as the earned income tax credit. The aim is to use the tax credit to reduce taxes paid by workers who earn very little. In some cases, it may eliminate their taxes.

Three significant factors determining eligibility and the amount accruable in the credit are the tax-filing statuses, income, and the number of children the beneficiary has. The beneficiary and the children must also have valid social security numbers.

 Here's how it works. Depending on the number of children the person has, if the adjusted gross income falls below a certain threshold, then such a person is qualified for the earned income credit.

For example, for 2021, the income threshold for a person with two children was $47,915. The accruable credit totaled $5,980. That means a worker with two children was entitled to that refundable tax credit if the earnings fell below $47,915. The earned income tax credit is designed to give more money to those with lower income; the less the income, the more the credit. However, as the name suggests, the credit is only for those with earned income, no matter how little.  

The EITC is a lifesaving credit for many low-income families and individuals. But many people are neither aware nor conversant with things that can disqualify them from the earned income. Let's look at the details.

  • It is for low-income workers.

For 2022, to qualify, note that your adjusted gross income and number of children would come into play.

  1. If you have no child, your income must fall below $16,480. You're entitled to a credit of $560

  2. If you have. one child, your income should be below $43,492 for a tax credit of $3,733

  3. If you have two children and an income below $49,399, you are owed a credit of $6,144

  4. If you have three children or more and earn below $53,057, your credit value is $6,935

The more children and the lower the income, the more the tax credit. It's that simple.

  • You must earn an income.

The EITC is not available to unemployed people, no matter how financially incapacitated they are. You must have employment, even if it is self-employment,  to qualify. However, once your earnings go above a certain threshold, you can also be disqualified.

  •  Your investments shouldn't be above $10,000

Another thing that disqualifies a person from earned income tax credit is having no investment at all or having one worth more than $10,000. While you should have investments, they must be below $10,000 in value.

  • Filing status is essential.

Even if you don't owe taxes, you must file them to qualify. If you don't file your taxes, you can't be credited. You can only claim the tax credit if you file returns jointly with your partner as a married person. If you file separately from your spouse, then you do not qualify. Also, the kids you claim must have lived with you for more than half the year and can't be above 19 years. If the child is a full-time student, they must be below 24. If the child has any permanent disability, then the age becomes irrelevant.

  • Fraudulent claims

The EITC favors low-income families with more children. Although it doesn't increase the credit above three children, many people still make fraudulent claims to enjoy larger credit. If the IRS determines that the filer has made fraudulent claims to get or increase the credit, such a beneficiary risks losing the credit for up to ten years and paying back what was credited wrongly.

If you need more information on how to benefit maximally from the EITC, you may contact tax professionals for advice.



Tiffany Gaskin
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