Earned Income Tax Credit - What You Need to Know

Tax season in the United States is a trying time for everyone. So many rules and regulation. Few people really understand how it all works. Believe me, the tax preparers at H&R Block and Jackson Hewitt don't really know all that much more than the rest of us. This is the one thing that they really should teach us in school, but they don't. In this article I'll explain one particular credit that could help out a lot of families this tax season.

What is the Earned Income Tax Credit?

The Earned Income Tax Credit (EITC) was passed through legislation in 1975. It was meant to provide a tax break for low to moderate income working families throughout the United States. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

Basically, if you worked, but had a low or moderate income, you can claim this additional tax credit when filing your returns.

Who qualifies?

To qualify for EITC, you must have earned income from employment, self-employment, or some other source. And no, welfare does not count. Here is a quick overview of the income requirements:

Adjusted gross income (AGI) must be less than:

• $43,279 ($48,279 married filing jointly) with three or more qualifying children
• $40,295 ($45,295 married filing jointly) with two qualifying children
• $35,463 ($40,463 married filing jointly) with one qualifying child
• $13,440 ($18,440 married filing jointly) with no qualifying children

Tax Year 2009 maximum credit:

• $5,657 with three or more qualifying children
• $5,028 with two qualifying children
• $3,043 with one qualifying child
• $457 with no qualifying children

Also, investment income must not be greater than $3,100 for the year. You do not have to claim a child to qualify, although certain rules do apply, such as being a legal resident. Also, you cannot be the qualifying child of another person to claim this credit.

Common Errors

We all know mistakes happen. However, when it comes to mistakes with the IRS there are some huge penalties. For that reason, you should double-check and even triple-check your return. Errors in claiming your EITC can result in a delay or even a denial of your refund. Here are some common errors to avoid:

1. Claiming a child who does not meet all of the qualifying child tests; relationship, age, residency, and joint return.
2. Social security number or last name mismatches.
3. Filing as single or head of household when married.
4. Over or under reporting of income.

Keep in mind that this is just one of many tax credits offered to assist working citizens. Do your research at the IRS website (www.irs.gov) and go to your tax preparer armed with that knowledge. After all, you wouldn't buy a car without first doing your own research, would you? Apply that same resolve to your taxes. When you go to file your taxes, knowing what questions to ask could mean a huge difference in your refund.