Earned Income Tax Credit - What is it and what does it mean for me in 2015?

One of the most lucrative tax credits in recent years is the Earned Income Tax Credit.  This tax credit is for individuals who make less than $50,000 roughly.  This credit can give you extra money in the form of a refund or if you have withheld less than you should have, you can use the money to pay for your federal income taxes.  Each year there are changes to the amounts of earned income and adjusted gross income that you need to be below before you will receive the credit.

The government takes into consideration your Earned Income, which includes wages, salaries, tips, and other taxable employee pay, union strike benefits, long-term disability benefits received prior to minimum retirement age and net earnings from self-employment.  The levels that you need to be under are dependent on whether you have any qualifying children and whether you are married.  Note that you are unable to claim this credit should you decide to file married filing jointly.  Your qualifying children are children less than 19 or less than 24 if they are a full time student.  These children need to be living with you and not earning more than $6300.  ($6300 will require that they file taxes.)  Other relatives are allowed to be qualifying children, but the typical person who claims this credit uses his or her own children.  Another requirement is that you have no more than $1050 worth of unearned  income in savings, stocks, etc.

In order for you to be able to claim this credit, there are rules on forms and questions that your tax professional must ask you or he/she will be fined.  The government calls this “Due Diligence”.  There are four due diligence requirements. Generally, if your tax professional prepares EITC claims, he/she must not only ask all the questions to get the information required on Form 8867, Paid Preparers' Earned Income Credit Checklist, but they must also ask additional questions when the information that a client gives seems incorrect, inconsistent or incomplete. He/She must prepare, submit, and keep a copy of the Form 8867. They must prepare and keep all worksheets showing how the credit was computed.  So if your tax professional is preparing your taxes and you are taking the Earned Income Tax Credit, understand when he/she asks you some interesting questions.  He/She is doing it so that you can get the credit and he/she does not get fined.

Earned Income Chart

The earned income and adjusted gross income for 2013 will need to be less than:

·         $47,747 ($53,267 married filing jointly) with three or more qualifying children

·         $44,454 ($49,974 married filing jointly) with two qualifying children

·         $39,131 ($44,651 married filing jointly) with one qualifying child

·         $14,820 ($20,330 married filing jointly) with no qualifying children

Tax Year 2015 maximum credit:

·         $6,242 with three or more qualifying children

·         $5,548 with two qualifying children

·         $3,359 with one qualifying child

·         $503 with no qualifying children