I was asked this question from a client this Fall, “Kim Greenblatt, Tell Me ABout EITC, won’t you?”
EITC is the EARNED INCOME TAX CREDIT.
The earned income tax credit, abbreviated EITC (or just EIC), is a valuable credit available to lower-income taxpayers who work. It can be worth as much as $4,824 for 2008, depending upon the taxpayer’s filing status, income, and number of qualifying children involved. The earned income tax credit is refundable, which allows the taxpayer to get the credit as part of his refund, even if his tax has been reduced to zero.
QUALIFYING FOR EITC
Taxpayers may qualify for the earned income tax credit even if they have no qualifying children, but the rules are slightly different than for taxpayers with qualifying children. First, we will examine the rules for those without qualifying children. Then, we will look at the rules for those with qualifying children. Finally, we will discuss additional rules that apply to both.
Taxpayers Without Qualifying Children
To qualify for the credit, taxpayers without qualifying children must:
• Be at least 25 years old, but younger than age 65, on January 1, 2009
• Not be able to be claimed as a dependent on another taxpayer’s return
• Live in the United States more than half the year
• Have earned income and AGI of less than $12,880 ($15,880 if married filing jointly)
Taxpayers With Qualifying Children
To qualify for the earned income tax credit, taxpayers with one or more qualifying children must:
• Have a qualifying child who meets the relationship, age, and residency tests
• Have a qualifying child who is not claimed by more than one person for EITC
• Have earned income and AGI less than one of the following: $33,995 ($36,995 if married filing jointly) with one qualifying child
$38,646 ($41,646 if married filing jointly) with two or more qualifying children
Rules for Taxpayers With or Without a Qualifying Child
To qualify for the credit, all taxpayers must:
• Have a valid SSN
• Not use the filing status MFS
• Be a U.S. citizen or resident alien all year
• Not file a Form 2555 or Form 2555-EZ
• Have investment income of $2,950 or less
• Not be a qualifying child of another taxpayer
For an in-depth discussion of all the rules, IRS Publication 596, Earned Income Credit, is the best place to start. A synopsis of these rules also appears in IRS Publication 17. Whether a taxpayer meets these rules is determined throughout the tax interview performed by the Tax Professional. Therefore, it is important for the the Tax Professional to listen carefully during the interview to comply with EITC due diligence that is required by the IRS and respective State agencies.
Trust me that this particular credit is looked at very closely by the IRS for fraud.
For those who were looking for more link information on certain subjects, here you go:
November 02 2009
Kim Isaac Greenblatt
Kim Greenblatt, Tell Me About EITC (Earned Income Credit)