2007 US Tax Changes: Earned Income Benefits Increase

There have been several changes to the United States tax code that will be implemented for 2007. Among them is the Earned Income Credit (EIC) benefit. For your 2007 taxes, these benefits and income requirements have increased. Although the IRS has made the qualification complex, you may be eligible under the new changes. This is not a tax deduction, it is a credit that is applied to the amount of tax you owe or have overpaid.

Increase in Earned Income Amounts

For 2007, the IRS has increased the amount of earned income you can have to qualify:

¨ If you have two or more children, the maximum earned income allowed is $37,783 or $39,783 if you are married filing jointly.
¨ If you have one child, the maximum earned income allowed is $33,241 or $35,241 filing married and jointly
¨ If you have no children, the maximum allowed earned income is $12,590 or $14,590 filing jointly.
¨ You cannot file married and separate and qualify for the EIC credit.
¨ The adjusted gross income maximum has changed. Use the IRS form to determine eligibility.
¨ The amount of investment income you have has increased to $2,900.

Earned income includes all of your wages, salaries and tips. It also includes jury duty pay, self-employment net earnings, union strike pay and some disability pensions. Other income, some of which is also tax deductible, is not required to be claimed, such as VA benefits, child support, unemployment insurance, non-taxable military benefits and workman's compensation benefits. If you are unsure of the income's eligibility, refer to IRS Publication 596.

Increase in EIC Maximum Benefits

The benefit increases are as follows. Remember, you cannot qualify for EIC if you are married and filing separately.

¨ $4,716 is the maximum benefit with two or more children.
¨ $2,853 is the maximum benefit with one child.
¨ $428 is the maximum benefit without children.

Qualifying for the Earned Income Credit is complex. The IRS has developed an interactive, web-based application that asks you a series of questions to determine your eligibility. If you are eligible, Schedule EIC is the form you use to submit with your taxes. The IRS has also created Publication 596, Earned Income Credit (EIC) Are You Eligible, a 57 page document that explains the benefit and can be used to determine you eligibility as well as how to file for it.

The Earned Income Credit was originally created as a credit for low income earning people as an attempt to reduce the amount of tax they owe or increase their refund. You do not need to have children to qualify. If you do qualify, it can make a significant impact on your refund or amount you owe.