Earned Income Tax Credit

The Earned Income Tax Credit or the EITC is a refundable federal income tax credit for low to moderate income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a tax return.

The EITC has no effect on certain welfare benefits. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments.

Will you qualify for EITC?

The EITC is a credit for certain people who work. You (and your spouse, if you are filing a joint return) and any qualifying children listed on Schedule EIC need valid social security numbers.

Find out if you are eligible for the Earned Income Tax Credit or EITC by answering some questions and providing basic income information. The program also assists you in determining your correct filing status, determining whether your child(ren) meets the tests for a qualifying child, and estimating the amount of credit you may receive. However, if you were denied the EITC due to a reckless or intentional disregard of the rules, you cannot claim the EITC for the next two years after the denial. If your error was due to fraud, you cannot claim the EITC for the next ten years after the fraud determination.

Don’t overlook your state credit

If you qualify to claim EITC on your federal income tax return, you also may be eligible for a similar credit on your state or local income tax return. Twenty-two states, the District of Columbia, New York City, and Montgomery County, Maryland, offer their residents an earned income tax credit. Call us at 562-868-6333 or email emil@mycpaweb.com to find out if your state and/or local government offers the Earned Income Tax Credit.

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2 Comments

Filed under Accounting, Audit Representation, Business Litigation, Tax Planning, Tax Preparation, Uncategorized

2 responses to “Earned Income Tax Credit

  1. Can you explain the difference between a Tax Credit and a Tax Deduction in a future post.

    • mycpaweb

      Tax credit is a credit towards your tax liability, it reduces the taxes you owe the government.
      Tax deductions is a reduction of your taxable income, it is just like your mortgage interest or contributions.

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