Earned Income Tax Credit: How it Works and How to Claim It

The Earned Income Tax Credit is a refundable credit on your Federal taxes; designed to bring financial relief to those that earn a lower income, or that have total disabilities. The Earned Income Tax Credit not only is a great benefit in returning to low - income families some of the money they paid for taxes; it also helps the community, in that this money is then generated into the economy.

In order to qualify for the Earned Income Tax Credit, each of these criteria that must be met.

1. You must have earned an income for the tax year.

2. Your earned income, and adjusted gross must both be less than

a. $12,880 ($15,880 if married filing jointly) with no qualifying children

b. $33,995 ($36,995 if married filing jointly) with one qualifying child

c. $38,646 ($41,646 if married filing jointly) with more than one qualifying child

3. If you have a valid social security number

4. If you have a valid social security number for each child listed as a qualifying child.

5. If you are married, you must file jointly

6. You must be a citizen, or resident alien for the entire tax year

7. You cannot have received more than $2,950 in investment income. This is income received from interest, dividends, incomes from rent, net capital gains, or a net passive income, which is income that is not from being self - employed.

The qualifying child/children must meet the Relationship, Age and Residency test in order for you to use them as an Earned Income Tax Credit, and they cannot be used by more than one parent.

Relationship - the qualifying child/children must be your child. They must be either a son, daughter, step-child, adopted child or foster child; or a descendent thereof. If the child is a foster child, he/she must have been placed by an agency. The qualifying child can be a sibling, half-sibling, a step-sibling or a descendent thereof. You must have contributed to more than half of their support.

Age Test - the qualifying child/children must be under 19 years of age. If he/she is a full-time student, he/she must be under age 24. A person qualifies for the Earned Income Tax Credit at any age if they are permantly, and totally disabled.

Residency Test - the child/children qualifies for the Earned Income Tax Credit if they live in your house more than half the year. Only one parent can claim the Earned Income Credit, so if the child/children go back and forth between parent's home, they need to decide who can claim it.

If you have no qualifying children, you may still qualify for the Earned Income Credit. 1.) you must be at least 25 years of age, and less than 65. 2.) you cannot be the qualifying child of another person. 3.) you must have lived in the United States more than half of the year. Active-duty military personnel stationed outside the continental United States, are considered to be in the United States.

If necessary, you can receive at least part of your Earned Income Tax Credit throughout the year, when you really need it. File Form W - 5 with your employer to receive part of your Earned Income Tax Credit with your pay.

Each tax year thousands of dollars are not claimed, because some people do not realize that they could be receiving an Earned Income Tax Credit. When preparing your taxes, double-check everything to make sure you are receiving everything that you qualify for. If you have the ability to go online, check out the resources that I have listed here. On them you will find the answers to probably any question you might have concerning the Earned Income Tax Credit.

Resources:

www.jacksonhewitt.com/?ResourcesLibraryTopicsCredit

www.irs.gov/individual/article/O,,id=96466,00.html

http://en.wikipedia.org/wiki/Earned_Income_Credit