Earned Income Tax Credit
What form is used for the Additional Child Tax Credit?
"Form 8812, Additional Child Tax Credit"
What is the maximum amount of investment income you can have and still get the EIC?
$3,100 (for 2009)
What are the income levels at which the Child Tax Credit begins to phase out?
$50 for every $1,000 (or portion of) by which the taxpayer's Modified Adjusted Gross Income (MAGI) exceeds: Single, Head of Household, or Qualifying Widow(er) - $75,000; Married Filing Jointly - $110,000; Married Filing Separately - $55,000. MAGI re CTC adds foreign EI and US possession income into AGI.
What are the 7 EIC Rules for Everyone?
(1) AGI <$48,279 if 3 or more QCs and file MFJ (lower AGI if fewer or no QCs and/or you do not file MFJ (2) a valid SSN (3) cannot be MFS (4) must be a U.S. citizen or resident alien all year (5) cannot file 2555 or 2555-EZ (re to foreign earned income) (6) investment income must be $3,100 or less (7) must have earned income.
To be a dependent for a taxpayer, there are 4 tests that must be met. Name them.
1.) a dependent must be either a QC or QR; 2) the taxpayer claiming him must not be a possible QC or QR of someone else; 3.) a dependent cannot be a married person filing a joint return [unless merely to claim a refund and "there would be no tax liability for either spouse on separate returns"]; and 4.) a dependent must be a US citizen, US resident alien, US national, or resident of Canada or Mexico.
What are the 4 qualifications for a taxpayer WITHOUT Qualifying Children to receive the Earned Income Credit?
1.) be at least 25, but younger than 65, on January 1, 2010 (if MFJ, either spouse can meet this requirement); 2.) not be able to be claimed as a dependent on another taxpayer's return; 3.) not be a QC of another person; 4.) live in the U.S. more than half the year; and 5.) have EI and AGI of less than $13,440 ($18,440 if MFJ)
What are the 4 requirements for EIC Due Diligence?
1.) complete an eligibility checklist, 2.) compute the amount of credit, 3.) comply with the knowledge requirements, and 4.) retain records
What are the 4 qualifications for taxpayers with QC to receive EIC?
1.) have a QC who meets the relationship, age, residency, and joint return tests; 2.) have a QC who is not claimed by more than one person for EIC; 3.) not be a QC of another person; 4.) have EI and AGI less than one of he following: a. $35,463 ($40,463 if MFJ) with one QC, $40,295 ($45,295 if MFJ) with two QCs, $43,279 ($48,279 if MFJ) with three or more QCS
What are the 6 qualifications that apply to all taxpayers filing for the EIC?
1.) have a valid SSN, 2.) not use the filing status MFS, 3.) be a U.S. citizen or resident alien all year, 4.) not file a Form 2555 or Form 2555-EZ (re Foreign Earned Income), 5.) have investment income of $3,100 or less, 6.) have EI
What additional rules apply if you do not have a QC?
8.) You must be at least age 25 but under 65. 9.) You cannot be the dependent of another person. 10.) You cannot be a QC of another person. 11.) You must have lived in the U.S. more than half of the year.
What additional rules apply if you have a QC?
8.) Your child must meet the relationship, age, residency, and joint return tests. 9.) Your QC cannot be used by more than one person to claim the EIC. 10.) You cannot be a QC of another person.
What makes a Qualifying Child?
A Qualifying Child must meet the following six tests: 1.) Relationship, 2.) Age, 3.) Residency, 4.) Support, 5.) Joint return, and 6.) Special test (for QC of more than one person)
What is the difference between nonrefundable and refundable credits?
All credits are reductions in tax liability. Refundable Credits in excess of the tax liability will be refunded to the taxpayer. Nonrefundable Credits can only reduce the tax liability to zero. Some credits may be carried to other tax years.
If you do not have a QC can you claim the EIC if you are under 25 or over 64?
NO
What is the possible penalty for failing to comply with the EIC Due Diligence Rules?
If Tax Professionals fail to follow the Due Diligence Requirements, they are subject to a $100 penalty fine for each occurrence. A taxpayer who was denied EIC because of an error that was due to reckless or intentional disregard of the EIC rules cannot claim the EIC for the next 2 years. If the error was due to fraud, then they cannot claim the EIC for the next 10 years.
What is the Earned Income Credit (EIC, or EITC)?
It is a tax credit for certain people who work and have less than $48,279 of earned income (for 2009, if filing MFJ).
Can you claim the EIC if you file MFS?
NO
Juan (52) is a single taxpayer who has no dependents. Juan's EI and AGI in 2009 waas $15,021, all from wages. He had other no other income. Juan is a US citizen. Does he qualify for EIC?
No, he is the right age but his income is above the thresh hold of $13,400 for single with no dependents.
Does the waiver of the exemption to the noncustodial parent under the divorced parents' rules apply for EIC purposes?
No, only the custodial parent may claim the EIC with respect to a child of divorced or separated parents that is the subject of a waiver of the exemption to the noncustodial parent.
Rosalee (19) is a single taxpayer who has no dependents. Rosalee's EI and AGI in 2009 was $8,974, all from wages. She had no other income. She is a US citizen. Does she qualify for EIC?
No, since she has no dependents she must be older than 25 and younger than 65.
Lorelei (29) and Sean (28) are married taxpayers. They will be filing a joint return. Lorelei's income from wages was $18,871. Sean's income from wages was $10,465. They had $88 of interest income from their checking account. They had no other income in 2009. Lorelei and Sean are expecting their first child in June of 2010. Both are US citizens. Do they qualify for EIC?
No, the EI/AGI thresh hold for MFJ with no dependents is $18,440.
What makes a Qualifying Relative?
Tests for a Qualifying Relative include: 1.) Relationship or member of the household for the entire year, 2.) Gross income, 3.) Support, and 4.) Not a Qualifying Child.
How is the Additional Child Tax Credit computed?
The Additional Child Tax Credit is computed using "Form 8812, Additional Child Tax Credit".
Is the Child Tax Credit refundable?
The Child Tax Credit starts out as nonrefundable but some taxpayers may qualify for the "Additional Child Tax Credit", which is refundable.
What are the Tiebreaker Rules?
The Tie-Breaker Rules apply only to the child who is the QC of more than one taxpayer. They are: 1.) if only one of the persons is the child's parent, the child is the QC of the parent; 2.) if the parents do not file a joint return but both claim the child, the IRS will award the QC to the parent with whom the child lived for the longer period, if it is a tie, then to the one with the highest AGI; 3.) if no parent can claim the child as a QC, the child is treated as the QC of the person with the highest AGI; 4.) if a parent can claim the child but no parent does claim the child, the child is treated as the QC of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of either of the child's parents who could have claimed the child. If the parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the two.
What happens when more than one taxpayer claims the same QC?
The taxpayers may decide among themselves which one is to claim the credit along with all the other tax benefits. If more than one taxpayer claims the credit with respect to the same child, the IRS will decide which will receive the credit, based on the Tiebreaker Rules.
Who may qualify for the "Additional Child Tax Credit"?
To qualify for the Additional Child Tax Credit, a taxpayer must have one of the following: 1.) Earned Income exceeding $3,000 for 2009, or 2.) Three or more Qualifying Children. Any taxpayer with at least one QC may claim a credit of up to 15% of the amount by which EI exceeds $3,000. In all cases, the credit is limited to $1,000 per QC and reduced by the nonrefundable portion of the CTC.
Anita (42) is a married taxpayer. Her husband Mark (43) has not lived with her since 2007. Anita's EI and AGi was $28,478, all from wages. She had no other income Anita has one dependent daughter, Samantha (14). Anita and Samantha lived together in 2009, and no one else lived with them. Both are US citizens. Do they qualify for EIC?
Yes, her EI/AGI is under the thresh hold of $35,463 for HH with one QC.
Ronald (28) is a single taxpayer who has no dependents. Ronald's EI and AGI in 2009 was $10,281, all from wages. He had no other income. He is a US citizen. Does he qualify for EIC?
Yes, his EI and AGI are below the threshold of $13,440, and he meets all other requirements for taxpayers with no QCs.
Marty (24) is a single taxpayer who has one dependent, Mindy (2). Mindy is Marty's daughter, and she lived with him for all of 2009. No one else lived with Marty. Marty's EI and AGI was $23,457, all from wages. He had no other income. Both Marty and Mindy are US citizens. Marty is not a full-time student. Does he qualify for EIC?
Yes, the thresh hold for HH and single with one QC is $35,463 and he meets all other requirements.
Ernest (45) and Teresa (41) are married taxpayers. They will be filing a joint return. Ernest's income from wages was $23,457. Teresa's income from wages was $18,293. They had $144 of interest income from a money market account. They had no other income in 2009. Ernest and Teresa have two dependent sons, Michael (17) and connor (15). They all lived together in 2009, and no one else lived with them. Ernest, Teresa, Michell, and Connor are all US citizens Do they qualify for EIC?
Yes, their combined EI/AGI is $41,750, which is below the thresh hold of $45,295 for MFJ with two QCs, and their investment income is under $3,100. They meet all other qualifications.
Junichi (34) and Mariko (32) are married taxpayers. they will be filing a joint return. Junichi's gross income from wages was $34,281. He contributed $3,144 to a Sec 401(k) plan at work. Junichi and Mariko have one dependent daughter, Sakiko (4). They all lived together in 2009, and no one else lived with them. Junichi, Mariko, and Sakiko are all US citizens. Do they qualify for EIC?
Yes, their income is below the thresh hold of $40,463 for MFJ with one QC.
What final rule applies to everyone?
Your Earned Income (EI) must be less than (for 2009): 1.) with 3 or more QCs $43,279 or $48279 MFJ, 2.) with 2 QCs $40,295 or $45,295 MFJ, 3.) with 1 QC $35,463 or $40,463 MFJ, or 4.) with no QC $13,440 or $18,440 MFJ.
