https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/eitc-income-limits-maximum-credit-amountsEITC provides assistance to low-income households. It will be extra money that will serve as payment toward your tax liability. If the credit exceeds any tax liability, or if you are already getting a refund, or if you have no tax liability, then the credit is given to you anyway. This is known as a refundable credit.
Do I need to be Head of Household in order to claim the credit?
- No, but if you are married and have been separated for the last 6 months of the tax year, then you have to qualify as Head of Household in order to avoid the status of married filing separately.
- If you are married filing separately, then you do not qualify for the credit.
- Married Filing Jointly, Single, or Qualifying Widow/Widower are all acceptable filing status for the EITC. Other conditions besides filing status apply.
Can there be more than one household within a single family residence?
- Yes, but you need to be able to document that the families are separately maintained within the living space.
Does a qualifying child need to be my dependent?
- In order to establish Head of Household status as a married person, you need a qualifier for that status who also qualifies as your dependent.
- It is possible to claim a child for the purposes of this credit without claiming the child as a dependent, but careful documentation is required in order to establish relationship and residence of the children. Be prepared to offer school and medical records to verify the residence of the child. Documented statements by churches or landlords may be acceptable.
You must not be the qualifying child of another person.
- If you are 18 or younger, and live with your mother, then you may be a qualifying child for your mother, for instance. You cannot claim the EITC for your child, but your mother may be able to claim EITC for both of you.
Why is all of this documentation required?
- This credit is monitored for fraud more than any other credit.
- If you have self-employment income, then your return will be placed under special scrutiny because of the ease of manipulation of the taxable income on a Schedule C.
- Penalties for misrepresenting EITC qualifiers are extensive for both the preparers and the taxpayers.
- Beware of a preparer who doesn't require verification for any unusual situation at every step of the way.
If you have investment income above $3,450, then you are not qualified for EITC.
If I have a child, but don't qualify, can I qualify as a taxpayer without qualifying children?
There is an EITC for taxpayers without children. This credit is potentially much less than the credit with a qualifying child, and the rules for age are different. If you have a child that isn't eligible for you to claim because of tie-breaker rules, for instance, then you may be eligible for the EITC without a qualifying child.
How much do I have to make to qualify for earned income tax credit?
Without a qualifying child, Your 2017 AGI and Earned Income must each be less than $15,010 for single, head of household, or qualifying widower. If your status is married filing jointly, the limit is $20,600.
With a qualifying child, the 2017 limits are: $39,617 (single, head of household or qualifying widower.) $45,207 for married filing jointly. Two children, 45,007 and $50,597. Three children, $48,340 and $53,930.
What is a qualifying child for the purposes of the earned income credit?
- Age restrictions: the child must be younger than you or your spouse on a joint return. The child must be under 19 at the end of the tax year. If the child is a full time student, they must be under 24. There is no age limit if the child is permanently disabled.
- Residency: The child has to live with you over half of the year in your main home in the United States or U.S. military base. The United States for this purpose includes the 50 states plus Washington, D.C.
- Relationship: Must be a member of your immediate family or a descendant.
- Joint Return: The child must be unmarried, or only filed a joint return in order to claim a refund, with no tax liability for either spouse.
- If this child qualifies another person, then apply tie-breaker rules
What are the tie-breaker rules?
- First, the natural parent can claim the child.
- If both parties are natural parents, then length of residency applies.
- If the amount of residency for the child is equal, then the parent with the highest AGI is eligible for the credit. If the parents are married and do not qualify for one of them to be head of household, then they can claim the credit on a joint return, not on married filing separately returns. If the parents are not married, they can choose which parent can claim the EITC. If they do not agree, then the parent with the highest AGI gets to claim the child.
- If the parents are not qualified to claim the child, then the qualified person with the highest AGI may claim the child
- If the parents are qualified but choose not to claim the child, then another person can claim the child only if their AGI is higher than the highest parental AGI.
Other points to consider:
- Some taxpayer identifying numbers are similar to a SSN, but do not involve the Social Security Administration. An ITIN is for people with a filing requirement who need to file, but are not eligible for this credit. An ATIN is for pending adoption purposes.
- Residency is very important for this credit, but qualifying as a dependent is not necessary unless you need a dependent to confirm your filing status.
- What types of income qualify as earned income for the purposes of the EITC.
- Are there exceptions for the military?
- There are severe penalties for inaccuracies on this credit, so it is imperative that your claim is valid and verified.
Contact us for a complete analysis of your situation, and to achieve peace of mind when filing for this important and complicated credit.