Around tax season, it seems like there’s a million different tax credits and you aren’t always sure which ones will work best for you. One of the tax credits that is available to a lot of people, but most people don’t know about is the Earned Income Tax Credit (EITC).The Earned Income Tax Credit is a tax benefit for people working with a low to moderate income. The EITC is one of the biggest refundable credits, because it can create a tax refund for you if you weren’t sure you’d get one. Many people don’t claim the EITC even though they qualify for it because they think they are either ineligible, didn’t know about the credit, don’t think they made enough money to qualify, or are worried about paying for tax preparation services.
What is the Earned Income Tax Credit
The Earned Income Tax Credit is one of the biggest tax credits and can apply to a large part of the population. The credit is meant to ease the tax burden of working families with children who make a low to modest income. The credit reduces any federal income tax you owe, going dollar-for-dollar with it. The credit can also eliminate your tax bill and if there’s some credit leftover, you will get a cash refund for that remaining amount. The EITC can mean up to $6,318 refund for working families with qualifying children and up to $510 for workers without a qualifying child
Qualifying for the Earned Income Tax Credit
To be eligible for the EITC, you must meet the requirements and file a tax return, even if you aren’t required to file or you don’t owe any taxes. One of those requirements you must meet is the income requirement. For those married and filing jointly, you must have earned less than $53,930 in 2017. If you are filing individually or are head of household, you must of earned less than $48,340 in 2017.
You qualify for the tax credit if:
- You have income from earnings (i.e. your job, your own business, and certain long-term disability benefits)
- You did not receive more than $3,405 in interest or dividends, or income from rentals, royalties, or stock
- If you are married and did not file Married Filing Separate
- You, your spouse and your children all have Social Security numbers
- You are not excluding income earned from a foreign country
- You are a citizen or resident of the U.S.
There are a few exceptions if you are a member of the armed forces. Usually, nontaxable pay for armed forces doesn’t count as earned credit for the EITC. A member of the armed forces can choose to include their nontaxable pay into their earned income for the purpose of EITC which may result in an increase or decrease in their EITC. You can find out the amount of nontaxable combat pay on your W-2 Form, in box 12, code Q. If you do include combat pay in income, you must include all nontaxable combat pay received.
How to find out if you Qualify
The IRS recommends using the EITC Assistant to determine if you are eligible and estimate the amount of credit. Qualified taxpayers should consider claiming the EITC by filing electronically, which is available through a qualified tax professional, free tax help sites, or with the IRS Free File. You can also reach out to a local tax preparer to see if they think you are eligible.
It’s important to know that many EITC filers will get their refunds later than normal this year due to federal law that the IRS can’t issue refunds for tax returns that claim the EITC before mid-February.
If you need help determining which tax credits apply to you or need help preparing your tax returns, Polston Tax can help. Our team of tax preparers and accountants can help decide which deductions and exemptions work best for you! Call us today at 844-841-9857 or click here to schedule your free consultation!