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 level.
Taxpayers should be more alert by looking for any schedule A and schedule C on their tax return if they are not self-employed and did not receive a Form 1099. Tax returns with schedule A and schedule C face more scrutiny. The statute of limitations is 3 years for most of the 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 under $59,187 for the tax year like wages, salaries, tips, net earnings from self employment, investment income below $10,300, and other employee compensation. Earned income, generally, does not include:
- Child support
- Social Security
- Interest and dividends
- Pensions or annuities
- Unemployment benefits
- Pay you received for work when you were an inmate in a penal institution
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. For tax year 2022, taxpayers who are generally 19 years old and older could claim a maximum of:
- No qualifying children: $560
- 1 qualifying child: $3,733
- 2 qualifying children: $6,164
- 3 or more qualifying children: $6,935
Illustration. Maria and Colette 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 19 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
Taxpayers must be a US Citizen or a resident alien. 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. There are some special rules for military members, clergy members, and taxpayers and their relatives with disabilities.
For further reading, see Internal Revenue Code (Sec. 32, 87, 173, 895, 923, 2402, 2403, 2410, 6402(m); Publication 596 (2022).
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