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CREDITS: EARNED INCOME CREDIT

CREDITS: EARNED INCOME CREDIT. EARNED INCOME CREDIT. The Earned Income Credit (EIC) is a refundable tax credit available to certain taxpayers who work but do not earn high incomes. They can receive a refund even if they have no filing requirement, owe no tax, and had no income tax withheld.

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CREDITS: EARNED INCOME CREDIT

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  1. CREDITS:EARNED INCOME CREDIT

  2. EARNED INCOME CREDIT • The Earned Income Credit (EIC) is a refundable tax credit available to certain taxpayers who work but do not earn high incomes. • They can receive a refund even if they have no filing requirement, owe no tax, and had no income tax withheld. • Purpose: to reduce the tax burden and supplement the wages of working families whose earnings are less than certain maximums, depending on their filing status and number of qualifying children.

  3. Eligibility • Taxpayers and all qualifying children must have SSNs. • Cannot file Married Filing Separately. • Must be US citizens or resident aliens all year. • Taxpayer cannot be qualifying child of another. • Taxpayer cannot have over $3,100 investment income.

  4. Eligibility, cont’d. • Taxpayer must have earned income, and all income must be below limit. • What is “Earned Income” for EIC? • Wages, self-employment, etc.: Yes • Social security, pension, unemployment, alimony, etc.: No

  5. Eligibility, cont’d. If taxpayer has no qualifying child: • At least one taxpayer on the return must be 25 but not 65 on Dec. 31. • Taxpayer cannot be a dependent or qualifying child of another person. • Taxpayer must have lived in the US more than half the year.

  6. Eligibility, cont’d. If taxpayer has a qualifying child: • “Child” must be child or sibling, or descendent of these (step, half & foster are OK). • Child must be below 19 or student and below 24, and younger than taxpayer, or disabled. • Child must be unmarried, unless a dependent. • Child must live with taxpayer over half the year (i.e., the non-custodial parent cannot count child for EIC). • Child must not be used by anyone else for EIC purposes.

  7. Entering the information • When entering dependent information, check the EIC box if there is any likelihood that the dependent qualifies the taxpayer for the EIC. • TaxWise will prompt you to complete the necessary forms. • If you think the taxpayer should qualify but TaxWise says he/she does not, check those forms VERY carefully.

  8. Previously Denied EIC If an EIC claim was denied or reduced due to any reason other than a math or clerical error: • A taxpayer who was reckless or intentionally disregarded the EIC rules cannot claim the EIC for 2 tax years. • If the error was due to fraud, the taxpayer cannot claim the EIC for 10 tax years.

  9. Previously Denied EIC • Taxpayers who have been denied the EIC have been officially notified of this. • If so, you must file Form 8862, Information to Claim Earned Income Credit After Disallowance, with the tax return.

  10. Advance EIC Payments • This is FYI in case someone asks. • In previous years some taxpayers could opt to receive part of the projected EIC in their paychecks throughout the year. • This policy was discontinued effective in 2011, so AEIC payments should no longer appear on W-2s.

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