The average Americans do find it challenging to know which of the tax credit they can utilize. Yet, tax credits are essential as they provide an easy way of reducing the overall tax liability. It even increases the tax refunds in some cases.
Earned Income Tax Credit is a valid and beneficial tax credit for families in some particular income bracket. These are essential things taxpayers need to know about EITC:
Only Low and Moderate Income Earners Can Qualify
It is pretty easy to determine eligibility for EITC.
The filing must be as individuals or joint filers (married)
You need a valid Social Security number for you, your spouse, and qualifying kids if married.
The age bracket is 25 to 65 years.
While the EITC is a credit directed at people in the low-income bracket, the income, number of qualifying kids, and filing status all have variations that impact eligibility. For instance:
Someone with earnings of $15,750 and no qualifying kid might get up to $540
A couple, married with three kids in 2020 and an AGI of $56,785 or lower might get as much as $6,660
This makes it critical for all filers to examine their eligibility for EITC every year. Uncle Sam specified that the maximum credit value for 2020 was $6,660
Self Employment People Qualifies
Self-employed people wrongly assume that they are ineligible hence hardly take advantage of the credit. According to Uncle Sam, every earned income qualifies for the credit. These are:
Salaries
Wages
Benefits from union strikes
Self-employment net earnings
Gross income that a statutory employee got
Here are categories of income that do not qualify
Alimony
Child support
Social security benefits
Retirement income
Payment for work while incarcerated
Investment Income can disqualify one.
For 2020, one will be disqualified if one's investment income is above $3,650 in a year. This includes income from rental properties, inheritance, or stock dividends.
Eligibility Differs at times
Since the personal tax situation might change each year, taxpayers need to watch out for eligibility criteria every year. Here are some changes that might impact one's eligibility:
Unemployment
New marital status
Unemployment
Annual bonus loss
Employ Tax Software to Help
One way to ensure that you get the tax benefit you qualify for is using electronic tax programs. Provided you supplied the correct information, this software can help ensure you get the tax benefit you are eligible for.
Earned Income Tax Credit stands out as one of the best credit for struggling taxpayers. It is essential to maximize the opportunity by using qualified tax software to maximize the credit.
Losing one’s Earned Income Tax Credit
The teams of professionals that work with Uncle Sam are skilled with years of experience in tax issues. They are good at determining errors or attempts to outsmart the system. As a result, you are better off being honest with Uncle Sam.
The penalty for trying to outsmart the system is removing the taxpayer’s access to the Earned Income Tax Credit for some years.
If Uncle Sam discovers that someone did not follow the rule and increased their credit, they might get a two-year ban from accessing the credit. After the two years, the filer will need to submit a particular request form that qualifies them to apply for a claim to the credit.
For a filer that gives fraudulent financial data to claim the Earned Income Tax Credit, the credit could be disallowed for ten years.
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