Since 1975, the Earned Income Tax Credit (EITC) has helped taxpayers keep more of their hard-earned money. However, according to the IRS, only 80% of eligible taxpayers filed and received their credit in 2010.
The most important qualification for EITC is earned income. The IRS defines earned income as all taxable income derived from work either for yourself, or for your employer. Only one partner in a married couple who is filing jointly must be earning income, and their investment income must be no more than $3,150 to qualify. Wages, nontaxable combat pay, net self-employment earnings and union strike benefits are all considered earned income, while investment income, alimony and child support received, life insurance proceeds and public support will not qualify.
The following are earned income limits, depending on your filing status and the number of qualifying children you can claim:
- $43,352 ($48,362 for married filing jointly) if you have three or more qualifying children,
- $40,363 ($45,373 for married filing jointly) if you have two qualifying children,
- $35,535 ($40,545 for married filing jointly) if you have one qualifying child, or
$13,460 ($18,470 for married filing jointly) if you do not have a qualifying child
No two earned income credits are alike!
In an effort to clarify this rigmarole, the IRS has created the EITC Assistant, to help you determine your eligibility for EITC. EITC is refundable, meaning, if your tax is already $0, you can take this credit and receive a refund of the full value. The average credit last year was $2,240 and the maximum amount was $5,751.
What else should you know?
- Today, there are no more advance payments of credit to those likely to receive the credit before filing their return.
- You cannot obtain EITC if your filing status is married filing separately.
- Most importantly, you must file a Schedule EIC with your form 1040 to claim your credit.
Wondering whether or not you qualify for EITC? Post a comment below or contact Michael Minotti or Jenna Staton in our Tax Planning & Preparation Services Group at 440-449-6800.