Many forget the Earned Income Tax Credit when filing; don't be one of them: IRS

Income tax season has barely started, but the IRS wants to ensure that people don't forget one important thing that many omit when they file their tax returns: the Earned Income Tax Credit.

The IRS has a separate Earned Income Tax Credit web page on its site. In addition, this page even has a link to an "assistant" that makes it easy to determine if you and your family are eligible for the EITC when doing tax preparation.

Those taxpayers with earnings of less than $48,362 from wages, self-employment or farming in 2010 should see if they qualify, said the IRS. The maximum Earned Income Tax Credit is $5,751. Remember, this is a credit, not a deduction. That means it totally offsets the applicable income tax. In other words, if you were to owe the federal government $2,000 after completing your income tax return, the result of receiving an EITC of $5,751 would be that you would now see a refund of $3,751.

Income limits are:

• $43,998 ($49,078 married filing jointly) with three or more qualifying children, for a credit of up to $5,751
• $40,964 ($46,044 married filing jointly) with two qualifying children, for a credit of up to $5,112
• $36,052 ($41,132 married filing jointly) with one qualifying child, for a credit of up to $3,094.
• $13,660 ($18,740 married filing jointly) with no qualifying children, for a credit of up to $464.

Investment income must be $3,150 or less for the year.

In addition, of course, to the wage limitations, to claim the Earned Income Tax Credit on your tax return, you must meet all of the following rules:

• Must have a valid Social Security Number
• You must have earned income from employment or from self-employment.
• Your filing status cannot be married, filing separately.
• You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
• You cannot be a qualifying child of another person.
• If you do not have a qualifying child, you must:
• be age 25 but under 65 at the end of the year,
• live in the United States for more than half the year, and
• not qualify as a dependent of another person
• Cannot file Form 2555 or 2555-EZ (related to foreign earned income)
• You must meet these EITC Income Limits, Maximum Credit Amounts and Tax Law Updates

Verlinda Paul, director of the Earned Income Tax Credit for the Internal Revenue Service said that nationwide, an estimated 20 percent of eligible taxpayers may not claim it because they don't know about the tax credit or don't think they can qualify for it.

However, taxpayers should know there are penalties for filing for the EITC if not qualified. A taxpayer will be disallowed from filing for the EITC for two years if they claim the EITC when not eligible and the IRS determines the error is due to "reckless or intentional disregard of the EITC rules." A taxpayer will be disallowed for ten years if they make a fraudulent claim. In both cases, form 8862 is required after the period in order to be reinstated for EITC. This form is not required if EITC was disallowed because of math mistakes or a clerical error.

The earned income tax credit (EITC) was originally enacted in 1975. The credit underwent significant expansions in 1990 and 1993. The Tax Relief and Job Creation Act signed into law December of 2010 provides a temporary increase in EITC and expands the credit for workers with three or more qualifying children. These changes are temporary and apply to 2009, 2010, 2011 and 2012 tax years.

Image Source: Wikimedia Commons

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