By Coleman Jackson, Attorney, Certified Public Accountant
September 10, 2019
The Earned Income Tax Credit or EITC is designed to assist working class families with children by putting money in their pockets. The EITC is a tax credit, not, a tax deduction. The difference is huge! A tax credit is a dollar for dollar reduction in the taxes owed. Tax credits generally will result in refunds and money in the taxpayers’ pockets. EITC often results in refunds to the taxpayer; although the IRS cannot issue refund checks for the Earned Income Tax Credit before mid-February.
The rules for qualifying and claiming the Earned Income Tax Credit are complicated. An excerpt from IRS Publication 596 reads as follows:
| Table 1. Earned Income Credit in a Nutshell: First, you must meet all the rules in this column. | |
| Chapter 1. Rules for Everyone | |
| 1. Your adjusted gross income (AGI) must be less than: • $49,194 ($54,884 for married filing jointly) if you have three or more qualifying children, • $45,802 ($51,492 for married filing jointly) if you have two qualifying children, • $40,320 ($46,010 for married filing jointly) if you have one qualifying child, or • $15,270 ($20,950 for married filing jointly) if you don’t have a qualifying child. | 2. You must have a valid social security number by the due date of your 2018 return (including extensions).
3.Your filing status can’t be married filing separately. 4. You must be a U.S. citizen or resident alien all year. 5. You can’t file Form 2555 or Form 2555-EZ (relating to foreign earned income). 6. Your investment income must be $3,500 or less. 7.You must have earned income. |
| Second, you must meet all the rules in one of these columns, whichever applies. | |
| Chapter 2. Rules If You Have a Qualifying Child | Chapter 3. Rules If You Do Not Have a Qualifying Child |
| 8. Your child must meet the relationship, age, residency, and joint return tests.
9. Your qualifying child can’t be used by more than one person to claim the EIC. 10. You can’t be a qualifying child of another person. |
11. You must be at least age 25 but under age 65.
12. You can’t be the dependent of another person. 13. You can’t be a qualifying child of another person. 14. You must have lived in the United States more than half of the year. |
| Third, you must meet the rule in this column. |
| Chapter 4.Figuring and Claiming the EIC |
| 15. Your earned income must be less than: • $49,194 ($54,884 for married filing jointly) if you have three or more qualifying children, • $45,802 ($51,492 for married filing jointly) if you have two qualifying children, • $40,320 ($46,010 for married filing jointly) if you have one qualifying child, or • $15,270 ($20,950 for married filing jointly) if you don’t have a qualifying child. |
If a taxpayer claims the Earned Income Tax Credit, the IRS may send a letter to them asking that they send the IRS information to verify the EITC claim. An appropriate and timely response to the request for substantiation of the EITC is very important because failure to do so could prohibit the taxpayer from claiming the Earned Income Tax Credit (EITC) for subsequent tax periods. The EITC substantiation may be in the form of the child’s birth certificate, health records, school records and other evidence in substantiation that the taxpayers’ meet all of the qualifications listed above to claim the EITC. In the event the taxpayers improperly claim the EITC, the taxpayer is banded for two years from claiming the credit. Internal Revenue Code Section 32(k)(1) permits the IRS to enforce the rules regulating the Earned Income Tax Credit by banding violators from claiming the EITC up to two years. Recently the IRS Office of Chief Counsel issued an advisement that essentially states that where a taxpayer improperly claim (or fail to substantiate) their EITC claim for one child and continues to claim the EITC in subsequent years for that child, the taxpayers are prohibited from claiming the EITC for that child and all other children even though they may qualify for the EITC in subsequent years. Claiming the child tax credit when under the two year band for any child has grave consequences.
Taxpayers can use the EITC Assistant on the IRS website to see if they qualify for the EITC. Again claiming the EITC improperly has grave financial consequences. Working people with low to moderate incomes must follow all the EITC rules so that they don’t run afoul of them and be stopped from claiming the Earned Income Tax Credit even when they otherwise qualify for this working family tax benefit.
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
