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Don't Forget the Earned Income Tax Credit, IRS Reminds

Michael Santo's picture

As tax season continues with tax preparations and e-filings on the way, the IRS has prompted citizens with a savings tip, reminding people that many low- and moderate-income workers are eligible for the Earned Income Tax Credit, yet fail to claim it.

The IRS has a separate Earned Income Tax Credit web page on its site. That page even has a link to a calculator that makes it easy to determine if you and your family are eligible for the EITC when doing tax preparation.

Those taxpayers with earnings of less than $48,362 from wages, self-employment or farming in 2010 should see if they qualify, said the IRS. The maximum Earned Income Tax Credit is $5,666. Remember, this is a credit, not a deduction. That means it totally offsets the applicable income tax. In other words, if you were to owe the federal government $2,000 after completing your income tax return, the result of receiving an EITC of $5,666 would be that you would now see a refund of $3,666.

Income limits are:

  • $48,362 for a family with three or more qualifying children, or $43,352 for a single parent, for a credit of up to $5,666.
  • $45,373 for a family with two or more qualifying children, or $40,363 for a single parent, for a credit of up to $5,036.
  • $40,545 for a family with one qualifying child, or $35,535 for a single parent, for a credit of up to $3,050.
  • $18,470 for a family with no children, or $13,460 for a single taxpayer, for a credit of up to $457.

In addition, of course, to the wages limiations, to claim the EITC on your tax return, you must meet all of the following rules:

  • Must have a valid Social Security Number
  • You must have earned income from employment or from self-employment.
  • Your filing status cannot 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 and filing a joint return.
  • You cannot be a qualifying child of another person.
  • If you do not have a qualifying child, you must:
    • be age 25 but under 65 at the end of the year,
    • live in the United States for more than half the year, and
    • not qualify as a dependent of another person
  • Cannot file Form 2555 or 2555-EZ (related to foreign earn income)
  • You must meet these EITC Income Limits, Maximum Credit Amounts and Tax Law Updates

According to IRS spokesman Christopher Miller, about 20 percent of qualifying taxpayers do not claim the Earned Income Tax Credit. This year, the IRS is making a special push to make sure all qualified taxpayers claim the credit.

However, taxpayers should know there are penalties for filing for the EITC if not qualified. A taxpayer will be disallowed from filing for the EITC for two years if they claim the EITC when not eligible and the IRS determines the error is due to "reckless or intentional disregard of the EITC rules." A taxpayer will be disallowed for ten years if they make a fraudulent claim. In both cases, form 8862 is required after the period in order to be reinstated for EITC. This form is not required if EITC was disallowed because of math mistakes or a clerical error.

The earned income tax credit (EITC) was originally enacted in 1975. The credit underwent significant expansions in 1990 and 1993.

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