| The earned income tax credit (EITC) is not for every taxpayer. As your income increases, the credit is reduced and it is phased out at an income threshold. In light of the elimination of most personal deductions, be more vigilant by looking for any schedule C on your tax return if you are not self employed and did not receive a Form 1099. Tax returns with a schedule C face more scrutiny than ever before. The statute of limitations is 3 years for most of those cases where taxpayers illegally claim the EITC. The earned income credit is a refundable tax credit that an eligible individual may claim based on a percentage of the individual’s earned income and the number of dependents who are qualifying children. To qualify for the earned income credit some requirements must be met. You must have earned income for the tax year like wages, salaries, tips, net earnings from self employment, and other employee compensation. Earned income, generally, does not include: . Pay you got for work when you were an inmate in a penal institution . Interest and dividends . Pensions or annuities . Social Security . Unemployment benefits . Alimony . Child support It is not accurate when a tax preparer, an advertising material, a family member, a friend, or acquaintance claims that you get a specific amount for your child or children. The amount of the credit is based on your specific tax and financial situation. This tax year 2020, taxpayers could claim a maximum of: . No qualifying children: $538. Note that taxpayer must be 25 years old and less than 65 years old. . 1 qualifying child: $3,584 . 2 qualifying children: $5,920 . 3 or more qualifying children: $6,660 Illustration. Annette and Anna could both have 2 children and earned the same income for the tax year, but one’s refund is higher because her financial situation is different. One might pay more tax from her paycheck, has more deductions, children are less than 17 years old or older, less than 24 years old and attended school, other income, and so on. Some taxpayers who can claim the EITC are in many instances overlook this credit. The list includes taxpayers: . Without children . Living in non-traditional families, such as a grandparent raising a grandchild . Whose earnings declined or whose marital or parental status changed . With limited English language skills . Who are members of the armed forces . Living in rural areas . Who are Native Americans . With disabilities or who provide care for a disabled dependent Each individual in the tax return must have a valid social security number to claim the earned income credit. An individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN) may not be used. For further reading, see Internal Revenue Code (Sec. 32, 87, 173, 895, 923, 2402, 2403, 2410, 6402(m). Do you know that you could reduce your tax liability by proper tax planning strategies? We offer FREE initial consultation!!!  |
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