Earned Income Tax Credit & All It’s Details

Taxpayers having income below a certain limit for a specific financial year can benefit from the Earned Income Tax Credit system provided by the United States of America. Under this tax credit system individuals can reduce the tax they owe to the government. In certain cases, they can even ask for a refund if they have paid more than what they owe.

The intent of this credit system is to reduce the burden of taxes on individuals with low income. It also encourages individuals to start working.

A tax credit usually confuses individuals as many of us are not aware which one we qualify for. The Earned Income Tax Credit system is applicable for taxpayers with low to moderate income. The following are some of the facts and details that you should be aware of when it comes to Earned income tax credit or EITC.

Are you eligible?

Unlike some other tax credit systems, eligibility for EITC is pretty easy going. The following are some basic requirements.

–    You must file taxes either individually or if married must file jointly.

–    Everyone involved must have a valid social security number. (You, your spouse and qualifying children)

–    You should be within the age bracket of 25 to 65 years.

–    The status of your tax filing should not be married filing separately.

–    You should not be on the list of qualified children for someone else.

–    You should be within the limits of earned income, AGI and also investment limits.

For the year 2017, the income limits to avail Earned Income Tax Credit are:

–    $15010 for single filing applicants and $20600 for married filing jointly with no qualified children.

–    $39617 for single filing applicants and $45207 for married filing jointly with one qualified child.

–    $45007 for single filing applicants and $50597 for married filing jointly with two qualified children.

–    $48340 for single filing applicants and $53930 for married filing jointly with three or more qualified children.

If you fall into any of the above categories, you stand to benefit from the tax credit system. Each of these categories has a cap on the maximum amount of credit that an individual or individuals can receive. For no qualified children, the cap is at $510. For one qualified child, the same is $3400 and $5616 for two qualified children. In case of filings with three or more qualified children, the maximum credit is $6318.

Income from investments and other income not included

Keeping all of the above points if you stand a chance to receive tax credits, there is one more factor that you should keep in mind i.e. income from investments.

If your total income from investments such as stocks, dividends, rent or inheritance is in excess of $3400, you automatically do not qualify for EITC.

Some other types of income are also barred from EITC namely social security benefit, any money received for child support, alimony, retirement income and unemployment benefits. Any payment received for work during prison time is also not applicable for the tax credit.

Additional Benefits

EITC is a federally run program, but the benefits are not restricted to the same. Most of the states provide benefits in the form of a certain percentage of the federal EITC. This ensures that more money stays with individuals with low to moderate income levels.

Even though you do not owe anything to the state, you still have access to state EITC which is refundable in almost all the states.

A lot of taxpayers do not file for EITC or any tax credit for that matter. For all the hard work that you put into your jobs, you should not leave out on such benefits. Make it a point to go through the eligibility criteria and see if you can benefit from the EITC. But do not try to falsely claim the same, as it might come back to haunt you at a later stage. As always, it pays off to be honest in case of EITC.

Check out more about Earn Income Tax Credit here.

Earned Income Tax Credit

What is Earned Income Tax Credit?

Earned Income Tax Credit or EITC is a mechanism that aims at supporting families with low to medium earnings. It is a refundable credit system that supplements individuals or families if they have been working (either self-employed or working for someone else). On qualification for EITC, one can not only reduce their taxes but also subsequently increase the tax refunds.

There have been some changes to the qualifying income limit for EITC. This means, that even if you did not qualify in the previous years, there are chances you can claim EITC this year. Along with the income limit, the maximum tax credit has also undergone some changes, allowing for higher tax credits. The primary goal of EITC is to keep families away from poverty and also encouraging more individuals and families to work.

Qualifying for EITC

In order to qualify for EITC the adjusted gross income and earned an income of a taxpayer should be below certain limits. The following are the revised limits for the year 2017 for individuals as well as joint filings for married couples.

• $15010 in the absence of qualifying children ($20600 for married joint filing)
• $39617 with one qualifying child ($45207 for married joint filing)
• $45007 with two qualifying children ($50597 for married joint filing)
• $48340 with three qualifying children ($53930 for married joint filing)

For the first category, the maximum allowed tax credit is $510. It increases to $3400 for the second category, $5616 for the third category and $6318 for the last category.

This means that an individual tax payer, without any dependents and earning less than $15010 is eligible for a maximum tax credit of $510. Similarly, a couple with three children and filing taxes jointly can seek tax credit up to a maximum of $6318.

The adjusted gross income and earned income limits for tax payers for the year 2016 were as follows:

• $14880 in the absence of qualifying children ($20430 for married joint filing)
• $39296 with one qualifying child ($44846 for married joint filing)
• $44648 with two qualifying children ($50198 for married joint filing)
• $47955 with three qualifying children ($53505 for married joint filing)

Other Criteria

There are certain other criteria that have to be met apart from the cap on income.

• You, your spouse and dependent children that you are claiming the tax for, should have a valid Social Security Number.
• You should have some form of income, it can either be self-employed or from employment.
• You should be a US citizen or a resident for at least year of tax filing.
• Or you can be a non-resident alien who is married to a US citizen or any other resident alien and opt for joint filing.
• If you are applying for tax credits, you cannot be the qualifying child of anyone else.
• Your qualifying child cannot be named in any other EITC filings.
• If you are filing EITC separately, your status cannot be married.
• For individuals who do not have qualifying children:
  • You should be more than 25 years but less than 65 years old of age.
  • Should have stayed in the United States for more than half of the years in question for tax filing.
  • Not be listed as qualifying child of anyone else.
• Form 2555 or 2555-EZ is not accepted.
• There is a cap on the investment income as well at $3450 for the year 2017, which was $3400 for the year 2016.

Before you file your tax returns, do take some time to check if you are eligible EITC or not. If you are, you can save a decent amount of money using the tax credit system.