Earned Income Tax Credit
Earned Income Tax Credit
There are many tax credits we may enjoy when we file our tax returns, both Federal and State.One of them and perhaps the most common of all is the Earned Income Tax Credit (E.I.T.C.).
It is one of the most sensitive cash bonuses in the tax system. It helps low income families with a much needed extra income, especially families with qualifying children. This is the reason it was enacted although many times it goes to the wrong people. However, it comes with a "string attached" that is requirements, such as availability, qualifications, restrictions and limitations.
A family with two qualifying children with an earned income in the range of $10,000 to $13,100 (and no other income) will get as much as $4,008 from Uncle Sam and it is refundable, that is, it will offset any tax due and the balance, if any, will be refunded to the filer. However, this well-meant credit could very well be lost due to no fault of our own. Oddly enough we could lose it when we need it most, that is when, forced by a financial distress, we and our children move in with our parents (same household). In this case the tax law is very clear. It says that the children may become the dependents of the one with the highest modified adjusted income in the household meaning that if our parents have a bigger income than ours, the children are their dependents (don't ask me the reason. As far as I am concerned, in many cases, there are no reasonable answers in the tax rules). Once we lose our children dependency, we lose the right to the earned income tax credit and even if our parents can't claim it (due to their income limitation, again don't ask) we are not allowed to claim it. The credit of $4,008 is lost. This is only the Federal amount. If we also add the loss from the State's e.i.t.c. (This year 25% of the Federal) the top amount of credit lost will be $5010. (4,008+1002) As mentioned above the earned income tax credit, from the Federal and the State, varies depending on the number of children, the earned income and income from other sources. (not on the asset, sic.) That's life. It is ironic. The much-needed financial help was lost because we needed financial help and moved with our parents for assistance. As an added injury, although we meet all the above requirements, we can't claim the earned income credit as a "person without a child" either (don't ask). It is a no win. It is an un-fair law, but it is a law and until it is changed, nothing we can do about it. There are other times when the e.i.t.c, as a beneficial credit, is lost. One of them and perhaps the more common one, is when a single parent with qualifying children decides to say "I do" In this case we have a new ball game. If the new partner has no income, the situation doesn't change. They will receive "their" e.i.t.c. based on "one" income. But if the new partner has an income, the two incomes must be added together and if the total is over the "income limitation" for their status, they will kiss the e.i.t.c.(both Federal and State) goodbye, it is lost. They should not even think about filing separately to beat the "new" situation. The earned income credit, like most of the other tax credits, is not available to people filing separate returns.