Client Question: What is the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) has been reducing the tax burden of working people since 1975. EITC can be a boost for workers who earned $50,270 or less in 2012. However, according to the IRS, one out of five eligible taxpayers fails to claim their EITC each year. Here are four important facts you should know about this credit:
1. The EITC can reduce the federal tax you owe, and in some cases can result in a refund. You base the amount of EITC on your earned income and the number of qualifying children in your household.
2. If your financial, marital or parental situations change from year to year, you should review the EITC eligibility rules. Just because you did not qualify last year does not mean you will not this year.
3. If you are eligible for the EITC, you must file a federal income tax return to claim the credit, even if you are not otherwise required to file. Remember to include Schedule EIC, Earned Income Credit, when you file your Form 1040.
4. You should understand the qualifications for EITC before claiming it, including:
- You must have a valid Social Security number for yourself, your spouse, if filing a joint tax return, and any qualifying child listed on Schedule EITC.
- You must have earned income. You have earned income if you are paid wages, you are self-employed, you have income from farming or you receive disability income.
- Married couples and single people without children may qualify. If you do not have qualifying children, you must also meet age and residency requirements as well as dependency rules.
- Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay as earned income for the purpose of computing the EITC. Even if you make this choice, your combat pay will remain nontaxable.
For more information about the EITC, see IRS Publication 596, Earned Income Credit, or contact your ShindelRock tax professional.