The Earned Income Tax Credit is a tax credit. It allows working Americans who qualify with low to moderate income to reduce the amount of tax owed. It is a benefit that may increase the amount of your refund. This tax credit helps to reduce the tax burden on lower income individuals.
Earned income means any income that is taxable income from wages and certain disability payments. You can earn income two ways, by working for an employer who pays you a salary or you run your own business or farm.
Types of Earned Income
- Wages, salaries, tips
- Union Benefits;
- Long-term disability benefits received prior to minimum retirement age
- Self Employment Earnings
- Business Owners
- Statutory Employees (Independent Contractors who receive a W-2 when box 13, statutory employee, is checked).
- Nontaxable combat pay. (See the IRS Armed Forces Tax Guide for more information).
Non-allowable Earned Income
Not all income is allowable as earned income by the IRS.
Interest and dividends
Social security benefits
- Income received while serving as an inmate in a jail
Earned Income Limits
Single, Head of Household or Widow – Your Earned Income and Adjusted Gross Income cannot exceed these limits.
- Zero Children- $14,820
- One Child – $39,131
- Two Children – $44,454
- Three Children – $47, 747
Married Filing Jointly – Your Earned Income and Adjusted Gross Income cannot exceed these limits.
- Zero Children- $20,330
- One Child – $44,651
- Two Children – $49,974
- Three Children – $53,267
Additional Limits to be Aware of for Earned Income Credit
If you earn income from investments that income cannot exceed $3,400. If it does then you will not be eligible for the Earned Income Credit.
Maximum Earned Income Credit Amounts
So maybe you are wondering just how much you could qualify for if you were to file for this credit. Using the above guidelines for qualification you could earn from $500 to $62oo for the 2015 Tax Return Filing year.
- With 3 or more qualifying children: $6,242
- With 2 qualifying children: $5,548
- With one qualifying child: $3,359 with one qualifying child
- With no qualifying children: $503
Qualifying Children for Earned Income Tax Credit
Qualifications for the earned income tax credit are dependent upon relationship, age, residency and filing status of your household.
- Descendant Relationship: your son, daughter, foster child (placed by an approved agency), or any descendant that resides within your home.
- Familial Relationship: your brother, sister, half brother, half sister, step brother, step sister or a descendant of any of them such as a niece or nephew, that resides in your home.
Age of Qualifying Child
The age a child is at the end of a qualifying tax year determines eligibility. This means the age the child was on December, 31, 2015.
- Younger than 19.
- Younger than 24 and a full-time student.
- A child of any age who is permanently and totally disabled. (A disability of a physical or mental condition and a doctor determines the condition has lasted or can be expected to last at least a year or lead to death.)
Residency of a Qualifying Child
- A Child must live with you in your residence, or your spouse if you file a joint return, within the United States for more than six months of the year (Not including Puerto Rico or U.S. possessions such as Guam).
- The child cannot file a joint return for the tax year unless the child and the child’s spouse did not have a separate filing requirement and filed the joint return only to claim a refund.
- No one else can claim the child. Only one person can clain a child on an Earned Income Tax Credit. See the IRS qualifying child rules for more information.
If you qualify for the earned income tax credit brings more money back to your family. To determine if you qualify schedule an appointment with Cowdery Tax and Business Solutions today. We can help you file your EITC.