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.
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.