The Earned Income Tax Credit May Save Thousands for Taxpayers
January 28, 2010 by: Sandor Lenner,CPACountless hard working people may be missing the Earned Income Tax Credit or EITC that might be able to add an additional $5,600 or more to their pocketbooks. This tax credit as the name implies, is for an individual who works but doesn’t make a great deal of money. The tax credit began in 1975 to help offset Social Security taxes and to provide an incentive for work. It is one of the Federal government’s largest benefit programs for working individuals and families. Every dollar saved is a dollar earned, has significantly greater meaning, in today’s economy. For this reason,tax payers should not miss out on this important tax credit.
To Qualify for The Earned Income Tax Credit – To qualify for the The Earned Income Tax Credit you must meet all of the income, age, dependency and citizenship requirements. If you are married, you must file jointly, since the earned income credit does not apply to persons who are married, but file separately. In addition, investment income cannot exceed $3,100 for 2009.
Unfortunately, more people will qualify for the Earned Income Tax Credit for the first time because their income has declined, which may have resulted from pay cuts or a job loss. It is also applicable to those taxpayers who change their marital status or added children to their families during 2009.
If you have a family with three or more children you may be entitled to a larger credit in 2009 as compared to 2009. The reason for the increase is a result of the American Recovery and Reinvestment Act, which temporarily provides an increase in the Earned Income Tax Credit for taxpayers with three or more qualifying children. This new legislation was signed during 2009, and therefore the changes apply to 2009 when you file your income tax return during 2010. The maximum Earned Income Tax Credit for this new category is $5,657.
To receive this credit you are required to file a tax return. Tax Tip- If you are not required to file an income tax return, because you tax liability is zero or you because you do not owe any taxes, then you should strongly consider filing an income tax return this year to claim the credit, providing you are eligible for Earned Income Tax Credit.
The Amounts of the Earned Income Tax Credit – An example of how the EITC can help during these difficult times is as follows. A married couple with three children with income ranging from $12,570-$21,420 may be eligible for the maximum credit of $5,657. The maximum EITC for 2009 is as follows: (a)$5,657 with three or more qualifying children (b)$5,028 with two qualifying children (c)$3,043 with one qualifying child and (d) $457 with no qualifying children.
The Internal Revenue Service estimates that an additional 20% to 25% of taxpayers may qualify for EITC but may not be aware of it. Tax Tip – This information is very important and is worth repeating for those taxpayers who prepare their own tax returns. The EITC is a refundable credit, i.e., if the EITC reduces your taxable income below zero you are eligible to receive a tax refund for that amount.
This information is complex and you can learn more about the EITC from the Internal Revenue Service by asking for IRS publication 596. Tax laws are complex, change constantly and each situation is unique. This article is not intended to provide legal or accounting advice. The reader should perform his or her own due diligence and consult competent professionals in this area.
Learn more about how we can help determine if you are eligible for the Earned Income Tax Credit and other tax credits and about our competitively priced paperless approach to tax preparation at affordable prices. Sandor(Sandy) E. Lenner,C.P.A.-M.B.A. has provided accounting services for over 35 years and works part-time at his wife’s local CPA firm.
