EITC: Your gift from the feds

The EITC, or Earned Income Tax Credit, can provide you with direct reductions in your federal income tax.  Better yet, i the EITC exceeds the tax you owe, then it is refundable, meaning that you will actually get a cash refund for the amount that EITC exceeds your federal income tax.

Ever Present
Ever Present by JD Hancock, on Flickr

EITC was designed so that working taxpayers with lower income, and especially those with children, would not have to pay federal income tax, or could pay a reduced rate of income tax.

To qualify for the EITC, you must have earned income.  This can come from a job, your own business, or certain other types of income.  It cannot come from interest, dividends, pension income, social security, unemployment, alimony, or child support.

Tax trivia: Wages earned by inmates in prison (license plates, etc.) do not qualify as earned income for purposes of EITC.

Taxpayers claiming EITC must meet several other requirements, too:

  • have a Social Security number
  • does not file “married filing separately” status
  • US citizen, resident alien, nonresident alien married to a US citizen or resident alien
  • qualifying child does not belong to another person (see below).
  • Adjusted gross income and investment income do not exceed a legal maximum.
EITC rates vary depending on whether you have a qualifying child and how many you have.  Determine if you have a qualifying child:
  • valid social security number
  • child is your son, daughter, adopted child, stepchild, foster child, or any descendent thereof.
  • the child is younger than 19, or, if a full-time student, younger than 24, or, if permanently and totally disabled, any age.
  • child lived with you for more than half the year.
  • child can’t file a joint return, unless the child and their spouse only filed to claim a tax refund.
  • child won’t be used by another person for the EITC.
If you don’t have a qualifying child, then you might still qualify for EITC if you meet the following requirements:
  • you (and if you’re married-filing-jointly, your spouse) lived in the United States for more than half the tax year.
  • you (orif you’re married-filing-jointly, your spouse) are at least 25 years old, but less than 65.
  • you (or if you’re married-filing-jointly, your spouse) cannot qualify as a dependent of another person.
The IRS has not yet made available its online calculator for the 2011 EITC.  However, you’ll EITC ranges and limits here.
As always, before doing anything having to do with your taxes, consult an accounting professional or learn the rules thoroughly.  Don’t just rely on some blog on the internet.  Here is a link to the IRS’ EITC website.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

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