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7 FAQs about the Earned Income Tax Credit

7 FAQs about the Earned Income Tax Credit - TaxAct Blog

The Earned Income Tax Credit, or EITC, is a tax credit designed to help low- to moderate- income working individuals and couples get ahead and put more money back in their pockets. It can provide a significant boost to your tax refund each year if you meet certain criteria.

For instance, if you are employed, but your earnings fall into what the IRS considers a lower income level based on the size of your family, you may be eligible for the credit.

The maximum EITC credit available for tax year 2016 is $6,269.

The easiest way to determine your EITC is to enter your information into TaxAct, which will automatically calculate the credit based on the details included in your return.

Below are a few common questions and answers about the EITC.

1. Do I qualify for the EITC even if I didn’t have any income tax withheld and I’m not required to file a tax return?

Yes! Thanks to the EITC, you can get money back even if you didn’t have income tax withheld or pay estimated income tax. This type of tax benefit is called a refundable credit.

However, you must file a tax return to qualify for the credit, even if you otherwise would not need to file.

2. Do I have to earn a very low income to claim the Earned Income Tax Credit?

If you have no qualifying children, you must earn a relatively low income to be eligible for the EITC. For tax year 2016, for example, you must have earned less than $14,880 to meet the requirements for the credit ($20,430 married filing jointly) if you have no qualifying children.

However, if you have just one qualifying child and make $39,296 or less (44,846 married filing jointly), you might be surprised to find you qualify for the EITC.

3. Who qualifies for the Earned Income Tax Credit?

You must meet the following qualifications to claim the credit for 2016:

  • Your earned income and adjusted gross income falls under these limits:
Number of Children Living with You Maximum Adjusted Gross Income and Earned Income
0 $14,880 ($20,430 married filing jointly)
1 $39,296 (44,846 married filing jointly)
2 $44,648 (50,189 married filing jointly)
3 or more $47,955 ($53,505 if married filing jointly)
  • You (plus your spouse if you are married) and your children have Social Security numbers.
  • You earn income either working for yourself or as an employee.
  • You do not use the Married Filing Separately filing status.
  • You are a U.S. citizen or resident alien all year, a nonresident alien married to a U.S. citizen or a resident alien and filing a joint return.
  • Someone else cannot claim you as a qualifying child for the EITC.
  • You do not have foreign earned income for which you must file Form 2555 or Form 2555 EZ.
  • You do not have more than $3,400 in interest, dividends or other investment income.
  • If you do not have a qualifying child, you must:
  • Be between the ages of 25 and 65 at the end of the year
  • Have lived in the United States for more than half the year
  • Not be the qualifying child of another person

4. Does military combat pay affect my credit?

If you receive combat pay, you can choose whether or not to include it in your taxable income.

Ordinarily, combat pay is not included in your taxable income. However, depending on your total earned income and family size excluding combat income from your taxable income could reduce the amount of EITC for which you qualify. You may be better off counting the combat pay as taxable income in those cases.

But remember, this decision is all-or-nothing. You must include all of your combat pay or none of it in your taxable income.

5. Can I have my Earned Income Tax Credit added to my paycheck throughout the year?

In past years, the IRS allowed taxpayers to receive the Advance Earned Income Credit throughout the year. However, in 2010 it was repealed and is no longer available.

6. Can I claim the Earned Income Tax Credit even if my child’s other parent claims him as a dependent?

If your child lived with you more than half the year, you generally take the EITC based on the child, regardless of who takes the dependency exemption.

The number of children you claim as dependents is not always the same number of children who qualify you for the EITC. If the time is equal, the parent with the higher adjusted gross income takes the credit.

Only one person can claim the same child. Noncustodial parents can’t claim children for purposes of the EITC.

Your qualifying child for the EITC must meet the following qualifications:

  • Age or disability. At the end of the filing year, the child was under age 19, or younger than 24 and a full-time student for at least 5 months of the year. The child must be younger than you (or your spouse if you file a joint return.) He or she can be any age if permanently and totally disabled.
  • Relationship to you. A child for the EITC can be your son, daughter, stepchild, brother, sister, half-sibling, step-sibling, foster child, adopted child or a descendent of any of these.
  • The child must have lived with you in the United States for more than half the year. If you file a joint return, you can include time the child lived with your spouse.
  • No joint return. Your child must not have filed a joint return with his or her spouse, unless it was only filed to claim a refund and he or she was not required to file a return.

7. I should have claimed the Earned Income Tax Credit in prior years, but I didn’t. Can I go back and claim the credit now?

If you filed your taxes from a previous year, but didn’t claim the EITC, you can file an amended return and receive the associated credit.

If you didn’t receive the credit because you didn’t file, or because you weren’t aware you could claim a child that was living with you, you must file a separate return for each year in which you qualified.

However, you can’t go back indefinitely. You can generally only file an amended return for the past three years. Use TaxAct to file Form 1040X, Amended U.S. Individual Income Tax Return.

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.

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