February 10, 2016/ Last updated : February 20, 2023CowderyTaxes
The Earned Income Tax Credit (EITC) is a tax credit for low-to-moderate-income working individuals and families in the United States. The EITC is designed to provide a financial boost to those who earn low wages and may struggle to make ends meet.
The credit is based on a taxpayer’s earned income, which includes wages, salaries, and self-employment income. The credit amount increases with the amount of earned income, up to a maximum credit amount, after which it gradually phases out as income increases.
The EITC is refundable, which means that even if the credit is more than the taxes owed, the taxpayer can still receive the difference as a tax refund. The amount of the credit varies depending on the taxpayer’s income, number of qualifying children, and filing status.
Earned income means any income that is taxable income from wages and certain disability payments. You can earn income two ways,by working for an employer who pays you a salary or you run your own business or farm.
Types of Earned Income
- Wages, salaries, tips
- Union Benefits;
- Long-term disability benefits received prior to minimum retirement age
- Self Employment Earnings
- Business Owners
- Farmers
- Ministers
- Statutory Employees (Independent Contractors who receive a W-2 when box 13, statutory employee, is checked).
- Nontaxable combat pay. (See the IRS Armed Forces Tax Guide for more information).
Non-allowable Earned Income
Not all income is allowable as earned income by the IRS.
- Interest and dividends
- Retirement income
- Social security benefits
- Unemployment benefits
- Alimony
- Child support
- Income received while serving as aninmate in ajail
Earned Income Limits
Single, Head of Household or Widow– Your Earned Income and Adjusted Gross Income cannot exceed these limits.
- Zero Children- $14,820
- One Child – $39,131
- Two Children – $44,454
- Three Children – $47, 747
Married Filing Jointly–Your Earned Income and Adjusted Gross Income cannot exceed these limits.
- Zero Children- $20,330
- One Child – $44,651
- Two Children – $49,974
- Three Children – $53,267
Additional Limits to be Aware of for Earned Income Credit
If you earn income from investments that income cannot exceed $3,400. If it does then you will not be eligible for the Earned Income Credit.
Maximum Earned Income Credit Amounts
So maybe you are wondering just how much you could qualify for if you were to file for this credit. Using the above guidelines for qualification you could earn from $500 to $62oo for the 2015 Tax Return Filing year.
- With 3 or more qualifying children: $6,242
- With 2qualifying children: $5,548
- With onequalifying child: $3,359 with one qualifying child
- With noqualifying children: $503
Qualifying Children for Earned Income Tax Credit
Qualifications for the earned income tax credit are dependent upon relationship, age, residency and filing status of your household.
Relationship
- Descendant Relationship: your son, daughter, foster child (placed by an approved agency), or anydescendantthat resides within your home.
- Familial Relationship: your brother, sister, half brother, half sister, step brother, step sister or a descendant of any of them such as a niece or nephew, that resides in your home.
Age ofQualifying Child
The age a child is at the end of a qualifying tax year determines eligibility. This means the age the child was on December, 31, 2015.
- Younger than 19.
- Younger than 24 and a full-time student.
- Achild of any age who ispermanently and totally disabled. (A disabilityof a physical or mental condition and a doctor determines the condition has lasted or can be expected to last at least a year or lead to death.)
Residency of a Qualifying Child
- A Child must live with you in your residence, or your spouse if you filea joint return, within the United Statesfor more than six monthsof the year (Not including Puerto Rico or U.S. possessions such as Guam).
- The child cannot file a joint return for the tax year unless the child and the child’s spouse did not have a separate filing requirement and filed the joint return only to claim a refund.
- No one else can claim the child. Only one person can clain a child on an Earned Income Tax Credit. See the IRS qualifying child rules for more information.
Claiming the Earned Income Tax Credit
To claim the EITC, a taxpayer must file a tax return, even if they are not required to do so otherwise. The credit can provide a significant financial benefit to eligible taxpayers, helping them pay for necessities like housing, transportation, and food, and can help lift families out of poverty.
If you qualify for the earned income tax credit brings more money back to your family. To determine if you qualify schedule an appointment with Cowdery Tax and Business Solutions today. We can help you file your EITC.
This information is not intended as legal or tax advice. Cowdery Tax and its representatives does not offer legal or tax advice. We offer services for business bookkeeping, payroll, tax payments, and personal tax filings. We share information that is publicly available. Tax laws may change with or without notice that may alter or change the information contained in this publication.
