The Earned Income Tax Credit……
So, it depends…..got kids? If not, you may still qualify for a small amount. But the large dollars go to those with kids…..you get one amount for having one child and another, larger amount, for having 3 or more kids. 10 kids doesn’t get you anymore EITC than 3 kids, it just gets you a much louder house.
Income considered in the equation is EARNED income. Those earning under $53,930 may qualify. Click here for dollar ranges. But listen to this……. the EITC can be as much (trumpet sound in background)…..$6,318! WOW! There is an Assistant tool on the IRS website that can help people determine if they are eligible. It’ll be available mid January.
There are various qualifiers for the credit. A couple years ago the IRS started asking tax preparers to get additional “proof” from the people who are receiving this credit. If you have kids, then you’ll probably need to bring in something with the child’s name on it that matches the taxpayer’s address. Possible options include: school records, day care provider records, doctor’s records, etc. If you are self employed then the type of records you provide to show income and expenses is reported. The IRS says they are trying to cut down on EITC fraud.
To compute the amount of this credit, the IRS looks at 2 different amounts:
You look up each of those amounts for the EITC amount and you get the lower of the 2. So you may be able to get your AGI down by putting money in a deductible IRA or a Health Savings Account, but that gets compared to the one based on earned income, which could be zero, and that would mean $0 for you. 🙁
Once nice thing is that this is a refundable credit, which means even if you are paying $0 tax and getting every dollar back that you paid in, you still get the credit. That’s different from the education credit which is NOT refundable. Another thing that’ll ruin getting EITC for you is having investment income of over $3,450. So all you savy investors out there will just have to enjoy the spoils of those fabulous investments you made without the bonus of also getting EITC.
BTW….This is one of those darn credits that you don’t get if you file as Married Filing Separate so beware of that.
IMPORTANT! If there are children involved, with more than one adult in the household, it’s important to look at all scenarios to see which scenario of who claims who works out to the best overall money in your pocket.
The State of Ohio also has an Earned Income Credit for tax years beginning on or after January 1, 2014. It’s for those who were eligible for the federal credit. The Ohio EIC is equal to 10% of the federal EITC. Limitations apply if Ohio taxable income is over $20,000 on either an individual or joint return.