You may have heard about an earned income credit. But what exactly is it? And how do you know if you qualify for it? Read on to find out everything you need to know.
What is an Earned Income Credit?
The Earned Income Tax Credit, abbreviated to either EIC or EITC, is known as a refundable tax credit if you fall under low-to-moderate income. How much you receive back depends on your income, filing status and how many children you have. In 2020, you could receive a credit between $538 and $6,660.
The earned income credit refunds you and gives you a tax reduction. Depending on the circumstances, your refund could be more than you paid.
How Do I Qualify?
Overall, there are three major qualifications that are broken down into more specific terms.
You can qualify for the earned income credit if you:
- Have earned income and adjusted gross income within a limit
- Meet basic rules
- Social security numbers for yourself, your spouse, and each child that qualifies
- Filing status must be: single, head of household, qualified widow/widower, married filing jointly
- Total earned income at least $1 (for 2019)
- Tax year investment income has to be >$3,600 for 2019
- Have a qualifying child
- The child must live with you and pass relation, age, residency and joint return tests
- Don’t have a qualifying child
- You/you and your spouse have your main residence in the U.S. for more than 6 months of the tax year, cannot be claimed as a dependent or qualifying child on another return, and are between 25 and 65 years old by the end of the tax year
- If you are married and filing separately, you are not eligible for this credit
- The total earned income cannot come from your pension or unemployment
- You cannot file Form 2555 (Foreign Earned Income) or Form 2555-EZ
Do your Research for Tax Season
Tax season can be very confusing, especially with various options you may or may not qualify for, such as the earned income credit. There are many resources to utilize for research before tax day, such as blogs or the IRS webpage.
If you’re seeking help with your taxes and finances, turn to Satty, Levine & Ciacco, CPAs, P.C. Visit our website today to get started.