Determining If You Qualify for the Earned Income Tax Credit

Help Wanted Ad in Newspaper Nearly 40 years, ago, Congress created the Earned Income Tax Credit (EITC.) Although the credit has existed for several decades, it is one of the least-highlighted credits, leaving many taxpayers not understanding how this credit works and if they qualify for it. Low and moderate income taxpayers, especially those with children, should make themselves aware of the credit, as it may offer a significant aid at tax time.

Congress designed the EITC to function as a subsidy for modest-income working families. The EITC’s intention is to offset some of the regressive ramifications of Social Security taxes, which place a proportionately heavier burden on workers with comparatively lower incomes.

The EITC has a sliding scale of income caps for eligibility, depending on your filing status and number of children. For instance, in 2013, single filers with no children may qualify for the EITC if they have an annual income below $14,340. However, single filers with three or more qualifying children can earn up to $46,227 in annual income and potentially still receive the EITC. For married couples filing jointly, the caps are even higher. Couples with no children may possibly qualify if their income is below $19,680, and those with three of more qualifying children have an income cap of $51,567. Married couples filing separately cannot obtain the EITC.

The rules establishing which children are qualifying children for the EITC mirror those for other tax credits. The child must be your biological child, stepchild, foster child placed with you by a court or authorized placement agency, biological sibling, half-sibling or step-sibling. Descendants of any of these individuals (such as your grandchildren or nieces/nephews) may also qualify. The child must be age 18 or younger, unless he/she is a full-time student or permanently and totally disabled. Full-time students up to age 23 may serve as qualifying children. Permanently and totally disabled children may qualify, regardless of their ages. Additionally, the child must live with you for more than half of the year. The credit can be sizable for some taxpayers. While the maximum credit is only $487 for taxpayers without children, the maximum credit for those with children ranges from $3,250 for those with one qualifying child to $6,044 if the taxpayer has three or more qualifying children. Additionally, another benefit of the credit is that it is refundable. That means that, if your tax liability is $1,000, and the law allows an EITC of $3,250, you can receive a refund payment of the remaining $2,250.

The tax code contain a wealth of credits and deductions that receive comparatively little fanfare but may nevertheless provide substantial benefits to qualifying taxpayers. The presence of these often-unreported credits and deductions highlight the importance of working with knowledgeable tax professionals to ensure you receive everything to which the law entitles you. To obtain qualified advice about the EITC or other credits, contact the tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. We have years of experience aiding taxpayers throughout New Jersey in minimizing their income tax liability. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

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