QUALIFYING FOR EARN INCOME TAX CREDIT
Some taxpayers with lower-paying jobs may be eligible for an earned income tax credit (EITC), based on their income levels. The EITC is a refundable credit; if the credit amount exceeds the taxpayer’s tax liability, the taxpayer may receive a refund for the excess. The number of returns claiming the EITC has grown in recent years: The IRS reports that 27 million taxpayers received $63 billion in EITC in 2012.
Claiming the EITC
Taxpayers without qualifying children
If a taxpayer does not have any qualifying children, in addition to the requirements already discussed, he or she must meet four additional tests to be eligible for the EITC:
- Be at least age 25 but under 65.
- Not qualify as a dependent of another person. Thus, if another person can claim the taxpayer (or spouse, if filing a joint return) as a dependent but does not, the taxpayer cannot claim the credit.
- Cannot be the qualifying child of another taxpayer—even if the other taxpayer does not claim the EITC or meet all of the requirements to claim the EITC.
- Must have lived in the United States (i.e., the 50 states or the District of Columbia) for more than half the year. Note that this excludes Puerto Rico or U.S. possessions (such as Guam).
Taxpayers with qualifying children
For a taxpayer with children, the children must also meet four tests:
Relationship test. The child must be:
- The taxpayer’s son, daughter, stepchild, foster child, or a descendant of any of them (e.g., a grandchild); or
- The brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them (e.g., a niece or nephew).
Age test. The child must be:
- Under age 19 at year end and younger than the taxpayer (and the taxpayer’s spouse, if filing jointly);
- Under age 24 at year end, a student, and younger than the taxpayer (and the taxpayer’s spouse, if filing jointly); or
- Permanently and totally disabled at any time during the year, regardless of age.
Student. To qualify as a student, during some part of each of any five calendar months during the calendar year, the child must be:
- A full-time student at a school with a regular teaching staff, course of study, and regular student body; or
- A student taking a full-time, on-farm training course given by such a school or a state, county, or local government.
Note that the five calendar months need not be consecutive.
Permanent disability. A child is permanently and totally disabled if (1) he or she cannot engage in any substantial gainful activity because of a physical or mental condition, and (2) a doctor determines the condition has lasted (or can be expected to last) continuously for at least a year or can lead to death.
Residency test.The child must have lived with the taxpayer in the United States (again, the 50 states or the District of Columbia) for more than half the year. Again, Puerto Rico and U.S. possessions are excluded.
Birth or death of child. A child who was born or died during a year is treated as having lived with the taxpayer for more than half that year, if the child lived in the taxpayer’s home for more than half the time the child was alive during the year.
Temporary absences. Time that a taxpayer or a child is temporarily away from home because of a special circumstance is counted as time lived with the taxpayer. Examples of this include illness, school attendance, business, vacation, military service, and detention in a juvenile facility.
Joint return test. A qualifying child cannot file a joint return for the tax year (although there are exceptions for children filing joint returns simply to obtain refunds of withheld taxes).
As always consult with a Tax Professional, who is always willing to explain your return and answer all your questions. Hickey&Hickey is a Full Service Tax and Accounting Consulting Firm that is always here to inform and educate the public. For a Consultation or a Tax Prep appointment Call (800)576-9574 or by email firstname.lastname@example.org