National Earned Income Tax Credit Awareness Day is January 25th and we want to help bring awareness to EITC and remind you that this tax credit can be worth up to $5,800, but you have to file your taxes to get it. Ginita Wall gives us more details on one of the most commonly overlooked tax credits
Are you expecting a tax refund this year? If you are eligible for the Earned Income Tax Credit, one might be coming your way. Though the refunds are greater if you have children, even those without children can qualify, as long as you or your spouse (if married filing jointly) are between the ages of 25 and 65.
The problem for most people trying to claim the credit is that the rules seem complicated, but using TurboTax makes it simple. In addition to TurboTax software making it easy to claim the credit, Intuit, maker of TurboTax also has the EITC Finder, which is a free smartphone app that makes determining eligibility easy.
Here are the rules for claiming the tax credit:
Your wages and self-employment earnings are the basis for the credit. You also can have interest, dividends and other investment earnings, but not more than $3,200 in 2012. For most of us, with interest rates at rock bottom, that isn’t a problem.
How much you can earn and qualify for the tax credit may depend on how many dependent children you have.
For 2012 if you have:
- Three or more children, you can earn up to $45,060 and qualify
- Two children, that drops to $41,952
- Only one child, your earnings and adjusted gross income can’t top $36,920
- No children? No problem, as long as your income is less than $13,980.
The refundable tax credit can give you tax credits ranging from a maximum of $5,891 if you have three children, to $475 if you have no children.
Here’s the best part: Most tax credits only apply against taxes you owe. If your tax is zero, you get no benefit. But if the earned income credit is greater than the tax you owe, the IRS will send you the difference. For example, if your credit is $1,200 and you owe $800 in taxes, you’ll get a check from the IRS for $400. How sweet is that?
Now for the fine print: If you are married but file separate returns as “married filing separately” you don’t qualify for the earned income credit. And if you share custody and your child has lived in your household for more than half the year, that child can qualify you for the credit even if the other parent is entitled to claim the exemption for the child on their tax return.
If you are eligible for the federal tax credit and you live in one of the 25 states that also has the credit, your benefits may be multiplied. And even if you normally make too much to qualify for the credit, if you lost your job and were out of work in 2012, you may still qualify for that year.
Remember if you have any questions about this tax law, you can call and ask our CPAs, tax attorneys, or IRS enrolled agents your question for free.