Earned Income Tax Credit Made Easy

Your Earned Income Tax Credit is a refundable federal income tax which is credited or given to individuals or families who are receiving low or moderate income. When the Congress have made this tax credit legislation in 1975, it offset tax burdens in social security, giving more incentives to those who are barely making ends meet. Also known as EITC for short, an earned income tax credit will rely on your eligibility for you to benefit from this tax credit program. An easy way to find out if you truly qualify for an earned income tax credit is to simply use an online tool on the IRS ( Internal Revenue Service ) website known as an EITC Assistant.

Tax payers can also get numerous help in preparing for their tax credit benefit at over 400 IRS offices nationwide, plus partner local communities and non-profit organizations. There are also over 12,000 volunteer sites across the states, where you can file free or get free electronic tax filing from reputable software companies. You may also call the IRS toll free number at 1-800-906-9887 to know any free tax site in your location. The IRS online also provides you with additional readings and don’t miss out the Publication 596 ( http://www.irs.gov/pub/irs-pdf/p596.pdf ) to help you figure out the amount of your tax credit.

Who are Eligible for an Earned Income Tax Credit?

Earned income includes wages, salaries, tips, union strike benefits, long term disability benefits before the minimum retirement age, and net income from self-employment. It is important to know that even without a child, you can qualify for an earned income tax credit. According to the IRS, these are all taxable earned incomes, and you may apply for a tax credit if:

You own a verified social security number
You earn income from employment or self-employment
Your income investment is limited to only $ 2,950
Your filing status is not set to ” married filing separately ”
You are a U.S. citizen or resident alien
You are not a qualifying child of another tax payer
You don’t file Form 2555 or Form 2555-EZ on your foreign-earned income
You are between 25 and below 65 years at the end of the tax year and you don’t have any qualifying child
Your income is less than $38,646 and you have 2 or more qualifying children
Your income is less than $33,995 and you have one qualifying child
Your income is less than $12,880 and you don’t have a qualifying child
You and your spouse’s income combined is less than $41,646, where you both have 2 or more qualifying children
You and your spouse’s income combined is less than $36,995, where you both have one qualifying child
You and your spouse’s income combined is less than $15,880, where both of you don’t have any qualifying child.

What Does a Qualifying Child Means in Filing Your Earned Earned Income Tax Credit?

Know that a qualifying child cannot be used in another EITC form, and that child must be related to you; like your son, daughter, step child(ren), legal foster or adopted child(ren), grand child(ren), brother, sister, half siblings, step siblings, or any of their descendants ( like niece or nephew ). Your qualifying child must pass these three eligibility tests, namely:

1. Residency Test that will prove your child have lived with you in the US for more than half of the tax year.
2. Relationship Test which will prove that your child is legally related to you.

3. Age Test where you need to prove that the child declared is under age 19, under age 24 for full-time students, and under any age for those who are permanently or completely disabled.

Your qualifying child must have proper, legal documents like a Social Security Number ( SSN ), Tax Identification Number ( TIN ), or Adoption Tax Identification Number ( ATIN ). Without an SSN or TIN, your qualifying child will be disqualified for the tax credit.

Do I Qualify for an Advanced Earned Income Tax Credit?

If you truly qualify for this tax credit, you don’t have to wait for the tax period to get your pay check.
Your employer can actually give you an advanced payment of up to $ $1,750 ( for the year 2009 ) by just filling out the Form W-5 and file it to your employer. You must secure the top part of the form for your own records. When you file for an advanced earned income tax credit, your W-2 form will show the advanced payment amount. You will not be using the Form 1040-EZ to report this payment. It is very important for you to check your eligibility for an advanced payment before you apply for a tax credit, or you will have to repay the amount given to you.

What Should You Do if Your Earned Income Tax Credit Application is Denied?

Sometimes, typo errors can wreak havoc on your tax credit application, resulting to a denied claim. When this happens, you need to attach a completed Form 8862 on your next tax return. Only file this form when typographical or clerical errors are made on your application. If you are denied claim for other reasons, you need to apply after two years of the final decision received from the IRS on your intentional recklessness in filing for an EITC. If fraud is involved, which have resulted to the denial of your claim, you need to re-apply after ten years.

Remember to avoid errors and review your application very well before you submit a claim. A simple mistake may cost you a lot. These mistakes can be as simple as filing the wrong civil status , incorrect income, missing or wrong social security numbers, or adding someone who is not eligible to be your qualifying child. There are plenty of scams out there that promise you a higher EITC and don’t fall a victim to these unscrupulous groups. You may get in touch with the IRS online ( www.irs.gov ) for more information on EITC.

RESOURCES:

IRS.gov. “ EITC Eligibility Rules Outlined. “ January 2009.
http://www.irs.gov/newsroom/article/0,,id=203139,00.html

IRS.gov. “ Earned Income Tax Credit ( EITC ) Questions and Answers. “ December 2008.
http://www.irs.gov/individuals/article/0,,id=96466,00.html

Perez, William. “ Earned Income Tax Credit. “ 2009. About.com.
http://taxes.about.com/od/deductionscredits/qt/earnedincome.htm

Taxes In-Depth LLC. “ How to Claim the Earned Income Tax Credit. “ 2009.
http://www.taxesindepth.com/earned-income-credit.html