Vrakas CPAs, Here Are Your Articles for Wednesday, January 18, 2017
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What's the Deal on the Earned Income Tax Credit?

 

The EITC is a subsidy the federal government provides to those who work but earn very little. For 2017, the IRS has provided a table for income limits. There is also an investment income limit of $3,450 or less for the year. (Amounts are generally adjusted each year, and there are other provisions.)

 

If filing as ...

Qualifying Children Claimed

Zero

One

Two

Three or more

Single, head of household or widowed

$15,010

$39,617

$45,007

$48,340

Married, filing jointly

$20,600

$45,207

$50,597

$53,930

 

The actual amount of the credit depends on the number of children, and it may be substantial. For the 2017 tax year, the maximum amount of credit is:

  • $6,318 with three or more qualifying children.
  • $5,616 with two qualifying children.
  • $3,400 with one qualifying child.
  • $510 with no qualifying children.

Who Is a Qualifying Child?

This is where it can get complicated, and it pays to know the details before making assumptions about who is or isn't included. According to the IRS, a qualifying child can include:

  • Your son or daughter (whether biological or adopted).
  • A stepchild.
  • A foster child.
  • Any descendant of the above, such as a grandchild.

The IRS also notes that a qualifying child doesn't have to be a descendent: a qualifying child can include full, half and step siblings or any of their descendants.

 

However, despite the flexibility of definitions, there are strict age limitations. At the end of the filing year, a child must be younger than you and younger than 19. However, the IRS will give a pass to children up to 24 years old if they're full-time students. There are no age limits for children who are permanently and totally disabled.

Residency restrictions also apply: A child must live with you (or your spouse, if you file a joint return) in the United States for more than half of the year. For the purposes of this law, the United States includes only the 50 states and the District of Columbia, not Puerto Rico or any U.S. possessions.

Working With the IRS

Although it would seem straightforward, the EITC can be complex to navigate, and those who claim it often find themselves with a lot of communications from the IRS. Even a minor discrepancy between what's on the return and what the IRS has on file can prevent your getting a credit you believe you're entitled to.

Your best bet with any notices, or just questions about whether you may be entitled to the EITC, is to call a qualified tax professional.

 

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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