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The Earned Income Tax Credit – Do You Qualify?

September 28, 2014  |   Tax Advice   |   Tags: , ,  

earned income tax

The IRS income tax credit (EITC) is a tax credit for certain people who work and meet some basic requirements. Obviously, when you get a tax credit, it puts more money in your pocket. It can reduce the amount of tax that you owe and might even mean a refund if you don’t owe any tax.

In order to claim the EITC, taxpayers have to meet the following eligibility requirements:

  1. Taxpayers must have earned income
  2. Taxpayers should have a valid Social Security number
  3. Investment income is limited to $3,100
  4. The filing status cannot be “married filing separately”
  5. They must be a U.S. citizen or resident alien all year
  6. They cannot be a qualifying child of another person
  7. They cannot file Form 2555 or 2555-EZ (related to foreign earned income)

A qualifying child cannot be used by more than one person to claim the Earned Income Tax Credit. This is definitely something to watch out for, as the IRS has strict policies for people who file incorrect information. Also, the child must meet some basic qualifications, including relationship, age and residency tests.

In case you don’t have a child:

  1. Your must be at least 25, but under age 65
  2. You cannot qualify if you’re the dependent of another person
  3. You must have lived in the United States for more than half the tax year

There are several frequent taxpayer mistakes:

a)    Claiming a child who doesn’t qualify

b)   Married taxpayers who should file as married, file separately instead of filing as single, or head of household

c)    Income-reporting errors

d)  Incorrect social security numbers

EITC errors have to be taken very seriously as they can delay or alter your refund. If it’s determined that your error is due to reckless or intentional disregard of the EIC rules, you may not be allowed to take the credit for 2 years afterwards. Should you fraudulently try to take the EIC, you will not be allowed to take the credit for 10 years and may owe additional penalties to the IRS. Exercise caution when filing for an EITC.