Did You Forget to Claim the Earned Income Credit?
You may qualify for the Earned Income Credit (“EIC”) from the IRS if you worked last year and earned limited income. The recent recession caused many people to lose their job or have their hours drastically cut last year. You too may be eligible for the first time in 2012. Amazing as it seems, the IRS estimates that every year up to 25% of taxpayers eligible for the EIC don’t file an EIC claim with their 1040 income tax return. Why? Many people don’t understand the EIC benefit, or don’t even know they qualify.
The EIC is a tax credit for working individuals & families with low to moderate income. The EIC has been in effect since 1975 as an incentive for people to work even if their income is modest. This credit can make a real difference to make a household’s ends meet. It also helps the economy since EIC recipients often spend the refund money at local businesses.
The EIC will offset any income tax you owe for a tax year. It is refundable: if the EIC is greater than your income tax due on the return, you will get a refund of the excess EIC; if you don’t owe any tax, you will receive the entire EIC. It can be worth up to $5,891 for 2012, depending on your filing status, income and number of qualifying children. There are a lengthy series of conditions to meet. To claim the EIC on your tax return you must satisfy all the following rules:
- You file an income tax return in order to get the EIC – even if you otherwise aren’t required to file a return that year.
- Your filing status can’t be married filing separately.
- You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien.
- You, your spouse (if filing a joint return) and all others listed on Schedule EIC must have a Social Security number.
- You can’t be a qualifying child of another person.
- You can’t file Form 2555 or 2555 EZ related to foreign earned income
- You must meet one of the following:
- Have a qualifying child, or
- If you don’t have a qualifying child, you must meet all of the following:
- Be at least 25 but under 65 years old at the end of the year,
- Live in the U.S. for more than half the year, and
- Not qualify as a dependent of another person.
- Investment income must be $3,200 or less for the year. Examples of investment income are interest, dividends and capital gains.
- You must have earned income. Types of earned income include:
- Employee wages including tips
- Net earnings from most self-employment or as a statutory employee
- Union strike benefits
- Long-term disability benefits received prior to minimum retirement age
- Earned income and adjusted gross income (AGI) must be less than:
- $45,060 ($50,270 married filing jointly) with three or more qualifying children
- $41,952 ($47,162 married filing jointly) with two qualifying children
- $36,920 ($42,130 married filing jointly) with one qualifying child
- $13,980 ($19,190 married filing jointly) with no qualifying children
With all these requirements to decipher, it’s easy to understand why so many people fail to claim the Earned Income Credit to which they are entitled. You owe it to yourself to speak to a tax professional if you think you may qualify. Gary Kaplan will be glad to answer your questions.