Earned Income Tax Credit | AccountingWEB

Earned Income Tax Credit

Working parents earned it. Don’t forget to claim it. The Earned Income Tax Credit lowered federal tax liabilities for 19 million lower-income working parents by more than $31 billion last year.

To qualify for the EITC, taxpayers must have earned income during the year. Married taxpayers who file a joint return may qualify if at least one spouse has earned income. Earned income includes all income from self-employment and wages, even though some wages may not be taxable. Nontaxable earned income includes employee contributions to 401(k) plans and cafeteria plans, certain meals and lodging provided by the employer, and employer-provided benefits, such as for dependent care, adoption, and education.

Some taxpayers may be eligible to claim the EITC for the first time, especially if there were changes in the family such as a new child, divorce or decrease in earnings during the past year.

Working parents with incomes under $32,121 can generally claim the EITC and get a credit up to $2,428 for one qualifying child and up to $4,008 for two or more qualifying children. To be a qualifying child, the child must meet age, relationship, and residency tests.

Taxpayers who are at least 25 years of age but under age 65, do not have a qualifying child and whose 2001 earnings were less than $10,710 may qualify for the EITC of up to $364.

All taxpayers must meet certain rules to claim the EITC. The taxpayer:

  • Must have a valid SSN issued by the Social Security Administration (SSA);
  • Cannot file as "married filing separately;"
  • Generally, must be a U.S. citizen or resident alien all year;
  • Cannot file Form 2555, “Foreign Earned Income,” or Form 2555-EZ, “Foreign Earned
    Income Exclusion;”
  • Cannot have investment income in excess of $2,450; and
  • Cannot be a qualifying child of another person.

Contact your tax preparer for more information on the earned income tax credit.

Wait, there's more!
There's always more at AccountingWEB. We're an active community of financial professionals and journalists who strive to bring you valuable content every day. If you'd like, let us know your interests and we'll send you a few articles every week either in taxation, practice excellence, or just our most popular stories from that week. It's free to sign up and to be a part of our community.
Premium content is currently locked

Editor's Choice

WHAT KIND OF FIRM ARE YOU?
As part of our continued effort to provide valuable resources and insight to our subscribers, we're conducting this brief survey to learn more about your personal experiences in the accounting profession. We will be giving away five $50 Amazon gift cards, and a $250 Amazon gift card to one lucky participant.
This is strictly for internal use and data will not be sold
or shared with any third parties.