Make Sure You’re Informed About the Earned Income Tax Credit

Westchester NY accountant Paul Herman has all the answers to your personal finance questions! 

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low to moderate income-earning individuals and families. If you qualify, the credit could be a maximum amount of up to $6,044 in 2013. This means you could pay less or no federal tax or even get a refund.

The EITC is based on your earned income and whether or not there are qualifying children in your household. You must file a tax return to claim the EITC and if you have children, they must meet the relationship, age and residency requirements.

What is the EITC?

You may qualify for the EITC if you worked any part of last year and made less than $51,000 in 2013.

Who is eligible for the EITC?

If you were employed for at least part of 2013, you may be eligible for the EITC based on these general requirements:

  • You earned less than $14,340 ($19,680 if married filing jointly) and did not have any qualifying children
  • You earned less than $37,870 ($43,210 if married filing jointly) and have one qualifying child (See Who is a Qualifying Child Below)
  • You earned less than $43,038 ($48,378 if married filing jointly) and have two qualifying children
  • You earned less than $46,227 ($51,567 if married filing jointly) and have three or more qualifying children
Note: The Tax Relief and Job Creation Act signed into law December of 2010 provides a temporary increase in EITC and expands the credit for workers with three or more qualifying children. These changes are temporary and apply to 2009, 2010, 2011, 2012 and 2013 tax years.

In addition you must meet a few basic rules:

  • You 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.
  • You cannot file Form 2555 or 2555-EZ (related to foreign earn income).
  • Your investment income must be $3,300 or less.

There are Special EITC Rules for:

  • A member of the military,
  • A minister or member of the clergy,
  • Impacted by disasters, or
  • Receiving disability benefits or have a qualifying child with a disability.

Tax Year 2013 Maximum Credit

  • $6,044 with three or more qualifying children
  • $5,372 with two qualifying children
  • $3,250 with one qualifying child
  • $487 with no qualifying children

Does my child qualify for the EITC?

To determine if your child is a qualifying child, review the relationship, age and residency qualifications listed below:

Relationship
To be your qualifying child, a child must be your:

  • Son, daughter, adopted child, stepchild, eligible foster child, or a descendant of any of them, or
  • Brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew).

Definitions to clarify the relationship test

  • Adopted child: An adopted child is always treated as your own child. The term “adopted child” includes a child who was lawfully placed with you for legal adoption.
  • Eligible Foster Child: A person is your eligible foster child if the child is placed with you by an authorized placement agency or by judgment, decree or other court order.

Age
Your child must be:

  • Under age 19 at the end of 2013,  or
  • A full-time student under age 24 at the end of 2013, or
  • At the end of the filing year, you child was permanently and totally disabled, regardless of age.
  • To be a qualifying child for tax year 2013, the child must be younger than you.

Joint Return
Your child must not file a joint return for 2013 or is filing a joint return for 2013 only as a claim for refund.

Residency
Your child must have lived with you in the United States for more than half of 2013.

Note: There are certain restrictions if more than one person qualifies for the EITC using the same child or if your qualifying child is married. Publication 596, Earned Income Tax Credit, explains these special circumstances. 

Additional Tax Credits

  • Child and Dependent Care Credit – If you paid someone to care for a child or a dependent so you could work, you may be able to reduce your federal income tax. See Publication 503,Child and Dependent Care Expenses.
  • Child Tax Credit – You may qualify for this credit if your child meets the criteria outlined in Publication 972, Child Tax Credit.

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Posted in Tax Tip and tagged , , ,

Leave a Comment