IRS DEDUCTIONS FOR EARNED INCOME TAX CREDIT

The earned income tax credit system helps taxpayers with low income to get more money back if they file an individual federal income tax return. Getting a income tax credit means you’re eligible for more tax refunds because it reduces the tax you have to pay to the federal government of the United States. In order for you to claim a tax credit, you must file a federal income tax return, even if your income is so low that you do not have to file an income tax return. Even if there is no tax at all to be paid, you can still receive a certain amount.

Income standards have been set to give more benefits to families with children, but single people with low income and couples with low income may also benefit from this. Foster parents and grandparents working and raising their grandchildren on their own are also eligible for tax credits. Even if a child is born on the last day of the tax year, one or both of the parents may have benefits if they had a job that year and met their income standards.

The deduction for earned income tax varies annually according to inflation, and the baseline varies widely depending on whether you are reporting income as a parent, the number of children included in your income declaration, or whether you are single or married.

The taxable amount for the 2019 tax year was $529 for taxpayers without children and $6,557 for taxpayers with three or more children, this amount changes depending on income. For 2020, the maximum taxable amounts are as follows:

For taxpayers without children, the amount is $538.

For taxpayers with one qualifying child, it is $3,584.

For taxpayers with two qualifying children, it is $5,920.

For taxpayers with three or more children, the amount is $6,660.

The refund amount can be used for any purpose and can be kept in a savings account.

In order to receive a deduction for earned income tax, you must have income from the job you do and that income must not meet a certain amount.Note that you do not need to include child support when calculating your income. Owners of farms and small business owners are also eligible for deductions for earned income tax credits.

You must have a Social Security number (SSN) to apply for a deduction for earned income tax. In addition, you must be a United States citizen, resident alien or non-resident alien who has stayed in the United States for the entire tax year and must be a non-resident alien co-reporting. An owner of a Green Card is a resident alien and has the right to live and work in the United States.

Eligibility for a deduction for earned income tax is determined by your earned income and your adjusted gross income (AGI).If your income is almost the same as last year, the easiest way to calculate your AGI is to refer to your income tax return for the past year. Even if your salary was significantly higher last year, you may be eligible for deductions from your earned income tax if your income has declined or you have earned slightly above your income limit in the past year and your income is not much higher in the current year.

Taxpayers who are couples separately reporting income or who report foreign income cannot apply for EITC. If you earn more than $3,600 from your investments such as stocks, mutual funds, bonds, etc. you will not be eligible for EITC benefits. Same-sex couples who are legally married can file a joint tax return and qualify for Earned Income Tax Credit.

If you are applying for EITC because you have children, include the Schedule EIC in your income statement and provide your child’s Social Security number and other information.

Earned income and AGI for taxable years in 2020 must be less than:

$41,756 for single parent with one child

$47,646 for Joint filing with one child

$47,440 for single parent with two children

$53,330 for couple with two children

$50,594 for single parent with three or more children

$56,844 for Joint filing with three or more children

The maximum credits given to parents are $3,584, $5,920 and $6,660 depending on the number of eligible children as earlier stated above.

Make sure your child is eligible. To be eligible for EITC, your child must be under the age of 19 on the last day of the tax year or under 24 if they are full-time students. There is no age limit for children with permanent disabilities. The child must be younger than the parent unless the child is disabled and the child falls under any of the following categories:

Sons, daughters, adopted children, stepsisters, foster children or grandchildren,

Brother, sister, half-brother, half-sister, nephew or niece.

You and your children must have lived together in the United States for more than half of the tax year. Note that if you are not a citizen and you are a permanent resident, you must have lived in the United States for the entire tax year to qualify for the deductions.

For the low-income households, single people or couples aged 25 to 65 without children can receive an EITC of up to $538.

In 2019, both taxable income and AGI must be less than:

Single: $15,570, for 2020, it is $15,820

Couples: $21,370, for 2020, it is $21,710

To be eligible for EITC, you must not be included as someone else’s dependent or as a child eligible for EITC.

Taxable work income includes:

Wages, salaries, tips and other taxable support benefits

Union strike allowance and jury allowance

Long-term disability benefits before the minimum retirement age

Net income from commissions, royalties and self-employment

If you receive a non-taxable risk special benefit (Code Q on Box 12 on Form W-2), it is your choice to include the risk special benefit in your income to receive EITC. Adjusted gross income may be less than or equal to your own income, depending on the deductions you may receive. To apply for EITC, your income and AGI must meet EITC income standards.

 

There are many programs (VITAs) in many communities that support income tax reporting for free or at low cost. When using paid tax services, it is advisable to avoid expensive refund anticipation loans and similar quick reimbursement types of services. The cost of these loans and services can reduce much of your tax credit benefits. In most cases, you will receive a tax refund in a few weeks, even if you don’t get a loan. However, to help prevent tax losses due to fraud related to identity theft and falsified wages and withholding taxes, request a deduction for earned income tax or additional child tax credit (ACTC).

The following forms are required to apply for EITC (also called EIC):

Schedule EIC-If you have eligible children, include this form in your federal income declaration. This Schedule EIC is not required for taxpayers without children.

Form 1040 -To calculate your EITC yourself, use the worksheet included in the form manual you use.

If you haven’t applied for a tax credit when you filed your income tax return for the past three years, but you think you qualify for it, let the IRS know that you can get it back.

About 30 states and Washington, DC also provide tax credits for eligible income taxpayers.

SOCIAL SECURITY NUMBER (SSN)

To be eligible for EITC, you and your children’s Social Security numbers are required. If your child does not have an SSN, contact the Social Security Administration and ask for the SS-5 form. Fill out and return this form to receive your Social Security Number. This may take two weeks or more. Securing your family’s SSN is helpful in many ways because you need an SSN to apply for your child as a dependent when you file a tax return, and your child needs a Social Security Number when he or she goes to child care or a school.