Taxpayers who have earned income and meet specific requirements may be eligible to receive the Earned Income Tax Credit. EITC is a refundable credit which means if you meet all eligibility qualifications, even if you do not have a tax liability or federal withholding you are entitled to the refund that is generated by the EIT credit. A return would have to be filed to claim the EITC even if the income is not high enough to require a return to be filed.
The requirements to determine eligibility should be carefully reviewed. Married taxpayers filing separately do not qualify for the EITC. To be eligible, taxpayers must be below the maximum income limitations specified for the filing year. There are different maximum income levels based on the number of qualifying children, one, more than one, or none. For a child to be a qualifying child they must meet specific relationship, age, and residency tests. The taxpayer must have a valid social security number, be a US citizen or resident alien for the entire year, cannot have foreign earned income, and cannot have more than the specified investment income limit for the year.
There are specific types of income that qualify as earned income for the earned income tax credit. Wages, salaries, tips, and other taxable employee pay, net self-employment income, and statutory employment gross income. Non-taxable combat pay can be included for EITC purposes.
There are additional considerations that must be taken into account before claiming the EITC. You cannot be a dependent of another person and claim the credit. You must meet the age restrictions by being at least 25 years old but under 65 years old. You cannot be a qualifying child of another person. Your qualifying child cannot be used by another person as a qualifying child for the EITC. Your child must have lived with you for more than half of the year in your home.
The Earned Income Tax Credit is also available throughout the year as a partial Advance Earned Income Tax Credit to those who are eligible. Additional information is available in IRS Publication 17, Your Federal Income Tax, Chapter 36.
When calculating the Earned Income Tax Credit due diligence is very important. Instructions should be carefully followed and checklists provided should be used as there is a high potential of error involved in this calculation. This is handled very efficiently by tax software. IRS Publication 596 Earned Income Credit (EIC) is an excellent source of information with worksheets, tables, and step by step assistance to determine eligibility. You can also determine eligibility online by using the IRS EITC Assistant at www.irs.gov/eitc.
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For more detailed information reference IRS publication 596 and IRS publication 17