Earned Income Tax Credit

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Earned Income Tax Credit

Also called the EITC. A dollar-for-dollar reduction in the tax liability for lower and middle income persons in the United States. The credit is applied against taxes owed on wages, salaries, tips and other forms of earned income. Investment income is excluded and one may not have more than a certain amount of investment income to be eligible for the credit. Households with children may receive larger credits. The EITC is refundable, meaning if the credit causes one's tax liability to go below zero, one receives the difference from the IRS.
References in periodicals archive ?
The maximum EITC does not vary with marital status, but the income eligibility ranges are slightly larger for married couples.
Using Current Population Survey (CPS) data from 2008, we analyze the labor market characteristics of EITC recipients and compare them to non-EITC recipients.
As noted in Chief Counsel Advice (CCA) 200022051, (30) in cases where the taxpayer reports net earnings from self-employment but cannot show that the business exists, the IRS may disregard these earnings in determining the taxpayer's eligibility for the EITC.
The CCA goes on to state that, if a taxpayer fails to keep proper books and records, the IRS may disregard reported income and disallow the EITC if the taxpayer fails to claim all allowable expenses.
The National League of Cities is part of the EITC Movement, which has helped hundreds of local communities ensure that eligible residents both know about the EITC and can readily prepare the tax returns required to claim it.
The EITC has a high take-up rate, meaning a high percentage of eligible households take advantage of it.
For a variety of reasons, including the complexity of the eligibility rules, the harsh sanctions following disallowance, and the size of the credit, EITC recipients use paid return preparers at a higher rate than other taxpayers.
Congress created the EITC in 1975 to offset payroll taxes paid by tow-income workers with children.
An 18-year-old taxpayer with a child who lives with her parents and wants to claim the EITC (the preparer should determine if the taxpayer is a qualifying child of her parents and therefore ineligible to claim the EITC);
However, those who favor economic growth and lower taxes should recognize that EITC expansion will not meet the first goal and help only a little with the second.
Free tax preparation through VITA is an extremely valuable resource to low-income taxpayers, especially those who file for the federal EITC.
IRS: 2015 EITC Income Limits and Maximum Credit Amounts*