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Going Deep on Earned Income Tax Credit01.28.14

Did you know that January 31, 2014 is Earned Income Tax Credit Awareness Day? It’s true! Don’t worry if you forgot to buy us anything. But we have a gift for you – an easy-to-understand breakdown of this important tax credit and what it means to you.

So what is EITC?
Earned Income Tax Credit, also called EITC or EIC, is a tax credit designed to help low-to- moderate income working individuals and families to keep more of their money.  The original form of the credit started in 1975 as a way to offset the burden of Social Security taxes on lower and moderate income taxpayers and to provide an incentive to work.  Since then, the credit has undergone many changes, and the current version of the credit can be worth as much as $6,044 for a family with three children. 

How is it calculated?
Today the credit amount is based on the size of your family and whether you are married or not.  The credit is available if you work, have a qualifying child, and have an adjusted gross income of less than $46,227 or $51,567 if married filing jointly.

The amount of EITC available varies based on income and number of qualifying children.
 

You may qualify for up to $3,250 if you have one qualifying child, $5,372 if you have two qualifying children and $6,044 if you have three or more qualified children.
  There is also a credit of up to $487 if you work, have no children, and have an adjusted gross income of less than $14,340 or $19,680 if married filing jointly. 

Keep in mind that to qualify, you must have earned income – either from wages or self-employment, but this does not include unemployment compensation and retirement distributions.

What else should I know?
The credit is a refundable credit which means you get to claim any credit after your taxes are satisfied as a refund.  While taxpayers who have “unearned” income like unemployment compensation will not receive an increase in EITC, they may see their total credit amount reduced by their “unearned” income.

The EITC is a complex credit, so be sure you have someone knowledgeable review your tax return and EITC eligibility and to make sure you claim the full amount available. As always,
your local Jackson Hewitt Tax Pro stands ready to help explain EITC or any other tax question you have in mind while ensuring you get every credit you deserve.