Earned Income Tax Credit: A Redistribution of Wealth Law Designed to Help Middle & Low Income Households

By:  Coleman Jackson, Attorney, CPA
February 17, 2017

The Earned Income Tax Credit (EITC) is essentially a redistribution of wealth law

The Earned Income Tax Credit (EITC) is essentially a redistribution of wealth law. Love cares for others- here, there and everywhere, and by expressions of gratitude with compassion stronger communities are built.    And In our time of growing income and wealth inequality here in the U.S. and around the globe, the Earned Income Tax Credit has been one area of U.S. federal tax policy designed to alleviate or, at least minimize, the financial pressures on low and middle income American citizens and resident immigrants.   The EITC lowers the federal tax burden on low and middle income earners while denying the credit to higher income households.   The EITC is a refundable tax credit where a taxpayer can receive a refund even though they had no federal taxes withheld from their wages during the tax year.  Tens of millions of hardworking workers could qualify for the Earned Income Tax Credit.  It is very important that workers, whether they are self-employed or wage earners, use the EITC Assistant on IRS.gov to determine whether they qualify for the EITC.

The Earned Income Tax Credit could be a financial boost in the arm; the EITC could be like a fuse or spark in the dark

The Earned Income Tax Credit could be a financial boost in the arm; the EITC could be like a fuse or spark in the dark.  In some situations amended tax returns should be filed because refunds could be due resulting from failure to take prior years Earned Income Tax Credit.  This could be necessary even though the taxpayer may have used a paid tax return preparer or prepared their return themselves using a tax return preparation software package.  Remember garbage into a computer generates garbage.  Lack of training could lead to misunderstanding and missed tax savings opportunities.  Preparing tax returns with insufficient knowledge and training is probably not too wise.  Again taxpayers should, at least, check the EITC Assistant on IRS.gov to ensure themselves that they are not leaving their EIC refund on the table.  Although a little more complex than this, typically, claims for tax refunds can be filed up to three years after the tax return is filed.

Earned Income Tax Credit qualifying guidelines are very complex and claiming the EITC in error could cause the errant taxpayer long-term tax headaches.  At a minimum an error in claiming EIC could delay your refund, and if your error is due to taking the EIC out of reckless abandonment or tax fraud, the taxpayer could be banned by the IRS from participation in the EIC program for two years.  The EIC qualification analysis begins with seeing whether your Adjusted Gross Income (AGI) falls within certain parameters.  You have to have qualifying children.  If married, you and your spouse must have valid Social Security Number that you got by the due date of the return, including extensions.  Those taxpayers, who do not qualify for a Social Security Number, should review our law firm’s earlier blog with respect to changes in the ITIN Program.  That blog can be read on our blog-site by clicking here:  http://www.cjacksonlaw.com/blog/check-itin-expired-expiring-soon/ .  Additional qualifying factors for the EITC are such factors as, relationship of the child, age, residency; taxpayers claiming EIC cannot be claimed dependents on any other tax return.  These are only some of the requirements; the EITC computations and qualification guidelines are complex and must be followed in an exacting manner.

Earned Income Tax Credit changes have been recently proposed by the Internal Revenue Service.  The Internal Revenue Service has issued proposed regulations this month which softens the IRS former position when two or more people could claim a single child as a qualifying child for Earned Income Tax Credit purposes.  Further the disqualified individual, under the rule before the proposed rule change, is prohibited from claiming a childless EIC under Code Sec. 32(c)(1)(A) and (B).  Under the proposed regulations issued this month, the IRS has softened its prior position and said that it is in keeping with the spirit of the Earned Income Credit program’s design to ease the financial burden of modest earners, for the IRS to permit the disqualifying individual(s) to claim the childless EIC under Code Sec. 32(c)(1)(A) and (B).

Note that all proposed regulations must be finalized.  Finalization of all proposed regulations, have been banned under the current White House Administration indefinitely.  The proposed regulation that we have been discussing styled “Proposed Regulation 1.32-2(c)(3)” has; therefore, not been finalized, and may not be implemented anytime soon.  The White House moratorium on issuing new federal regulations; however, only potentially effects the proposed IRS changes to EIC program, and not the original EIC law.  Therefore, qualified low and middle income households can still claim the Earned Income Tax Credit.  Follow our blogs for future updates on this topic as well as other topics of interest to immigrants, their families, their businesses and other hard working Americans.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

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