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Earned Income Tax Credit (EITC)

At tax time many people miss a tax credit that can help them to have a higher refund – The Earned Income Tax Credit. A tax credit reduces the amount of tax you owe. You may also get a refund if you claim the EITC.

If you file your return electronically with E-File-Tax-Returns.org, the software program will automatically calculate your eligibility for the Earned Income Tax Credit along with the amount of the credit, and put the calculations in your tax return.

What is the Earned Income Tax Credit?

The Earned Income Tax Credit or EITC is a tax credit for people who work, but whose income is below a certain qualifying level. Qualifying income amounts vary depending on your household situation (number of children and married vs. single).

Every taxpayer with children living under their roofs for longer than six months out of the tax year should check to see if they qualify for the EITC.

The children under your roof do not have to be children that you have given birth to. Foster Care providers that have children in their homes that stay for a period longer than six months out of the tax year can claim the Earned Income Tax Credit. So can grandparents caring for grandchildren, adult children caring for younger siblings, aunts, uncles, and legal guardianships.

What are the Rules for Claiming the EITC?

  • You must have earned income from employment or self-employment
  • You must have a valid social security number
  • Your filing status cannot be married filing separately
  • You must be U.S. citizen or resident alien for the whole tax year – or a nonresident alien married to a U.S. citizen, or a resident alien and filing a joint return.
  • The child cannot be a qualifying child of another person
  • 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 U.S. for more than half the year
    • Not qualify as a dependent of another person
  • Cannot file form 2555 or 2555ez (related to foreign earned income)
  • You must meet the EITC thresholds and limitations

What is Earned Income and What Does It Include?

Earned income includes all of the taxable income, tips, wages and some benefits, that you get from working.

Earned income comes from two places:

  1. Someone pays you taxable income for the work you do for them
  2. You are self-employed and work in your own business

Taxable earned income includes:

  • Wages, salaries and tips
  • Union Strike Benefits
  • Long-term disability benefits receive prior to minimum retirement age
  • Net earnings from self-employment

Combat Pay – Nontaxable pay election

You can elect to have your nontaxable combat pay included in earned income for the earned income tax credit. The amount of your nontaxable combat pay should be shown in your W-2, in box 12, with the code Q.

In the USA, it is estimated that up to one-quarter of the tax payers that are allowed to claim this tax credit do not ask that this money be credited to their names on their income tax filings. If a taxpayer finds that they have qualified for this refund in past years, but missed taking it, the IRS will allow taxpayers to go back and amend their taxes for three years.