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Earned Income Tax Credit info
Tax Credit (EITC)?
A. The Earned Income Tax Credit (EITC) sometimes called the Earned Income Credit (EIC), is a refundable Federal income tax credit for low-income working individuals and families. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.
Individuals and families are Eligible for EITC if they work and have earned income under:
· $11,490 ($12,490 if married filing jointly) if there is no qualifying child
· $30,338 (#31,338 if married filing jointly) if there is one qualifying child
· $34,458 ($35,458 if married filing jointly) if there is more than one qualifying child.
Q. Who can claim the credit?
A. To claim the EITC on your 2004 tax return, you must meet all of the following rules:
1. Have a valid social security number that allows you to work
· Additionally, to claim the EITC, you must have a valid Social Security Number (SSN) for you, your spouse (if filing a joint return), and your qualifying child.
· You cannot get the Earned Income Tax Credit if the SSN was issued solely for to apply for or receive federally-funded benefits.
· You cannot get the credit if, instead of an SSN, you, your spouse, or your qualifying child has:
· An Individual Taxpayer Identification Number (ITIN), which is issued to a noncitizen who cannot get an SSN, or;
· An Adoption Taxpayer Identification Number (ATIN) which is issued for a child to adopting parents who cannot get an SSN for the child being adopted until the adoption is final.
2. You must have earned income during the year.
3. Your earned income and modified AGI must each be less than:
· $11,490 ($12,490 if married filing jointly) if there is no qualifying child
· $30,338 (#31,338 if married filing jointly) if there is one qualifying child
· $34,458 ($35,458 if married filing jointly) if there is more than one qualifying child.
4. Your investment income cannot be more than $2,650
5. Your filing status can be any filing status EXCEPT “married filing a separate return.”
separate return.”
6. You cannot be a qualifying child of another person. If you are filing a joint return, neither you nor your spouse can be a qualifying child of another person.
7. Your qualifying child cannot be used by more than one person to claim the EITC.
Q. What if I was denied the EITC last year?
A. If you received a notice of deficiency denying your earned income tax credit for a previous year and you want to claim the EITC for tax year 2004, you need to complete Form 8862, Information to Claim EITC After Disallowance, and attach it to your 2004 tax return unless the following situation applies to you.
1. You are claiming the EITC without a qualifying child for 2004, and
2. Your EITC for the earlier year was reduced or disallowed solely because one or both of the children listed on your Schedule EIC were not your qualifying children for that year.
Q. Who is a qualifying child?
A. A qualifying child is a child who:
1. Is your son, daughter, adopted child, grandchild, great-grandchild, stepchild, or eligible foster child, and;
2. Was (at the end of the tax year) under age 19 or under age 24 and a full-time student, or; permanently and totally disabled at any age during the year; and
3. Lived with you in the U. S. for more than half of the tax year.
Q. Who is an eligible foster child?
A. A child is your eligible foster child for the earned income tax credit if all the following apply:
1. The child is placed with you by an authorized placement agency. (An authorized placement agency includes a state or local government agency or court. It also includes a tax-exempt organization licensed by a state.)
2. You care for that child as you would your own child.
3. The child lived with you for more than half of the tax year, except for temporary absences.
Q. What is Earned Income?
A. Earned income includes all the taxable income and wages you get from working.
There are two ways to get earned income:
1. You work for someone who pays you, or;
2. You work in a business you own.
Taxable earned income includes:
· Wages, salaries, and tips;
· Union strike benefits;
· Long-term disability benefits received prior to minimum retirement age;
· Net earnings from self-employment.
Q. How do I figure my credit?
A. You have two choices of how to figure the credit:
1. Have the IRS figure the credit for you. If you would like the IRS to do this, see Publication 596 , Earned Income Credit, or
2. Figure the credit yourself. To do this you must use the Earned Income Credit Worksheet (EIC Worksheet) in the instruction booklet for Form 1040, Form 1040A, or Form 1040EZ, and the Earned Income Credit (EIC) Table in the instruction booklet.
Q. How can I get EITC in my paycheck in 2005?
A. You may prefer to get some of next year’s EITC throughout the year, rather than wait and get EITC after you file your tax return. To get EITC complete Form W-5 and give the lower part of the form to your employer. Keep the top part for your records.
Q. What if I am prohibited from claiming the EITC for a period of years?
A. If your EITC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EITC rules, then you cannot claim the EITC for the next two years. If your error was due to fraud, then you cannot claim the EITC for the next 10 years. The date on which your EITC was denied and the date on which you file your 2004 return affect the years for which you are prohibited from claiming the EITC.
Q. Where can I get more information?
A. If you want to claim the EITC you should make sure your are eligible for the credit before sending in your tax return.
· Take advantage of a free volunteer tax assistance program such as the AARP’s Tax-Aide counseling program (see the next column) or the Military VITA Program for armed forces members and families.
· Take advantage of free assistance on IRS's recorded messages through our toll-free TeleTax service at 1-800-829-4477.
· IRS also offers federal tax forms and publications at 1-800-829-3676 or order free copies by U.S. mail. Some libraries, post offices, banks, and stores carry the most requested forms and instructions. Libraries may also have reference sets of IRS publications.
This information was drawn from the IRS website: http://www.irs.ustreas.gov/individuals/article/0,,id=96466,00.html
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