Qualify for a Working Tax Credit?

Hello, everyone. It’s Joe Gormley, CPA here to offer some more tax advice for you.  If you are stressing out on how you’re able to pay your tax debt before April 15th, you’re not alone. The Internal Revenue Service recognizes that those who work hard should be taxed according to their income levels. A working tax credit called the earned  income tax credit may be able to help you offset your tax burden. There are a number of factors that can determine whether you qualify for this tax credit which we will be taking a look into. As a recommendation, if you Find a Tax Professional for this Working Tax Credit, you can make filing your taxes a cinch and maximize the amount you save so you start earning more.

What’s an  Earned Income Tax Credit Anyways?
 An earned income tax credit, also known as EITC, is a type of working tax credit that can help families and individuals that classify as “lower-income” to reduce their overall tax burden. For families that are raising children, this credit is strongly applicable.

How Do I  Qualify?
 As we mentioned previously, not everyone can qualify for EITC. The IRS has a few rules that define who can qualify:

• You, your spouse (if they are filing a joint return), and those others listed       on Schedule EIC, must have a valid Social Security number for employment
• You must have earned income (see below) from working for someone else or       owning or running a farm/business
• Your filing status cannot indicated as “married filing separately”
• You must be a United States citizen or resident alien all year (nonresident       aliens married to a U.S. citizen or resident alien should consult Publication 519)
• You cannot be a qualifying child of another person
• You cannot file Form 2555 or Form 2555 EZ
• You must meet the earned income, AGI (Adjusted Gross Income) and investment income       limits
• You must meet one of the following: 
  • Have a qualifying child 
  • If you do not have a qualifying child, you must: 
    • be age 25 but under 65 at the end of the year
    • live in the United States for more than ½ the year
    • cannot qualify as a dependent of another person

Do you qualify? If you do, then it is essential that you file your tax return with the IRS to claim your credit. However, because of the ambiguity of some of these qualifications, we recommend that you neither count yourself out nor consider yourself qualified, as some details may exclude you from claiming the EITC. This is where a qualified Accountant can help you determine your eligibility and advise you on the proper course of action. 

 What is  Earned Income?

 It is not simply enough to qualify from the above criteria alone. Earned income also plays a significant role into determining your eligibility. The IRS defines earned income as: taxable income and wages you receive from  working for someone else, or you own/operate a business or farm.
 That seems like an easy enough definition, but there’s a few other sources of income that may influence how much or how little income classifies as earned income. What are some of these?

• Certain disability benefits received  before reaching the minimum age of retirement

• Net earnings from self-employment

• Union strike benefits

In addition to these definitions of earned income, those who served the country as members of the Armed Services (Navy, Coast Guard, Army, Marines, Air Force, National Guard) can file their nontaxable combat pay to be included with your taxable earned income to be eligible for EITC.  There is a restriction to this, however: you must include all or none of your income. A calculation for this type of earned income may not always be easy, especially for those that supplement their income with other sources of income or those that file jointly. While defining exactly what it takes to qualify earned income this way, we recommend the services of a competent Tax Preparer that has knowledge of your life situation.

Figuring Out Your ETIC

 There’s two ways for eligible recipients to find out if they’re eligible:

• Figure out  the credit for yourself. To accomplish this, you must use the Earned Income Credit Worksheet that  is included in the instruction booklet for Form  1040, Form 1040A, or Form 1040EZ, or with the help  of the Earned Income Credit (EIC) Table provided in the instruction booklet. 
• The IRS  can calculate the credit for you. To facilitate this, follow the instructions  for Line 64a on Form 1040 (also found on Line 38a on Form 1040A, or Line  8a on Form 1040EZ)

Actually, there is another method that combines expertise and efficiency. Instead of permitting the IRS to handle your tax calculations (you might not get all you deserve), or handling the  various forms yourself to figure out your EITC, qualified Tax Preparers can make sure that your money stays in your pocket and isn’t lost to those that don’t have your best interest at heart.

Past EITC  Claims

 It does help to know if you or those that have filed your taxes have claimed EITC in the past. The IRS is very strict when it comes to falsified tax returns and exaggerated claims:

• If the IRS  denied your Earned Income Tax Credit for any year after  1996 and found your error was due to reckless or intentional  disregard of the EITC rules, you cannot claim EITC for the following 2  years. For the current year, this would be as far back as 2013. 
• If your  error was due to fraud, you cannot claim Earned Income Tax Credit for the  next 10 years. In order to qualify for EITC despite fraud, your fraudulent tax  return of the past should not have occurred more recent than 2005.

In addition, these timeframes are influenced by both the date IRS denies your EITC and the date on which you file your tax return.