The Earned Income Tax Credit (EITC) is a tax benefit for working people whose income is below eligibility levels. The EITC can reduce the income tax you owe or may allow you a refund. According to the IRS, the EITC can provide up to $6,269 refund to working families with qualifying children or up to $506 refund for workers without qualifying children.

Eligibility requirements

  • You must have earned income either from working at a job for someone else or running your own business.
  • You, your spouse, and any qualifying child listed on your tax return must have a valid Social Security number.
  • You must file a tax return even if you are not otherwise required to file.
  • Your filing status must be:
    • Married filing jointly.
    • Head of household.
    • Qualifying widow or widower.

Income limits for 2016

  • Your investment income cannot be more than $3,400.
  • You must not file Form 2555, Foreign Earned Income.
  • Your total earned income must be greater than $1.
  • Both your earned income and your adjusted gross income cannot be greater than:
    • If you have no qualifying children:
      • $14,880 if you are filing as single, head of household, or surviving spouse.
      • $20,430 if you are filing as married filing jointly.
    • If you have one qualifying child:
      • $39,296 if you are filing as single, head of household, or surviving spouse.
      • $44,846 if you are filing as married filing jointly
    • If you have two qualifying children:
      • $44,648 if you are filing as single, head of household, or surviving spouse.
      • $50,198 if you are filing as married filing jointly.
    • If you three or more qualifying children:
      • $47,955 if you are filing as single, head of household, or surviving spouse.
      • $53,505 if you are filing as married filing jointly.

Additional rules if you don’t have a qualifying child

  • You must live in the U.S. for more than six months of the year.
  • You cannot be claimed as a dependent or qualifying child on anyone else’s return.
  • You must be older than age 25 and younger than age 65 at the end of 2016.

Other considerations

  • Some disability payments qualify as earned income for EITC purposes.
  • Grandparents caring for their grandchildren may qualify for the EITC if the grandchildren meet the requirements as qualifying children.
  • There are special EITC rules for members of the military, ministers, members of the clergy, and folks impacted by disasters.

For more information go to www.irs.gov/credits-deductions/individuals/earned-income-tax-credit.

 

 

 

Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.

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