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EARNED INCOME TAX CREDIT. One of the best reasons to file taxes is the EITCThere are two ways to get the EITC in advance, or at the end of the year. EITC (cont). To receive the EITC in advance, you must have a qualifying child.Fill out a form W-5 with your employerYour employer will pay you up to an extra $1597 throughout the year with your paycheck.Any additional EITC you may claim at the end of the year..
EARNED INCOME TAX CREDIT

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2. EARNED INCOME TAX CREDIT

3. One of the best reasons to file taxes is the EITC There are two ways to get the EITC in advance, or at the end of the year

4. EITC (cont) To receive the EITC in advance, you must have a qualifying child. Fill out a form W-5 with your employer Your employer will pay you up to an extra $1597 throughout the year with your paycheck. Any additional EITC you may claim at the end of the year.

5. EITC (cont) Fill out for W-5 with your employer to receive the advance EITC

6. Rules for everyone YOU MUST HAVE EARNED INCOME Earned income is income you get from employment. It includes wages, salary and tips. Disability benefits from an employer plan until you reach retirement age It does NOT include education assistance, TANF, food stamps, pensions, child support, or alimony. Disability benefits from an insurance company Workfare payments Worker?s comp, unemployment

7. Rules for everyone (cont) You cannot file ?married filing separately? Must be a US citizen or resident alien for 12 months, or married to a U.S. Citizen filing a joint return Must have less than $2,700 in investment income (interest) You cannot be the qualifying child of another person If you do not have a child, you must be 25 but not 65 years of age You must have a social security #

8. Rules if you have a qualifying child The child must meet the relationship, age and residency tests

9. Rules if you have a qualifying child Relationship test A child must be your son, daughter, adopted child, stepchild, or descendent (grandchild) Or your brother, sister, stepsister, or a descendent (niece, nephew) or eligible foster child

10. Rules if you have a qualifying child If your child was married at the end of 2005, he or she does NOT meet the relationship test unless: You can claim the child? s exemption or The reason you cannot claim the exemption is because you gave it to the child?s other parent

11. Rules if you have a qualifying child Age test The child must be under age 19 Or under age 24 and a full time student Full time means at least 5 months of the year (night school does not count) Or Permanently and totally disabled at any time during 2005

12. Rules if you have a qualifying child Residency Test The child must live with you over 6 months of the year 50 states and DC Homeless shelter ok Temporary absences ok

13. Rules if you have a qualifying child The child cannot be claimed by more than one person If a child meets the rules to qualify for more than one person Decide who will take the tax benefits The child?s exemption Child tax credit Head of household status Credit for child and dependent care expenses EITC

14. Rules if you have a qualifying child If you cannot agree, use the tie breaker rule

15. Rules if you have a qualifying child Example 1. You and your 2-year-old son lived with your mother all year. You are 25. Your only income was $9,000. Your mother?s only income was $20,000. Your son is a qualifying child of both you and your mother because he meets the relationship, age, and residency tests for both of you. However, only one of you can treat him as a qualifying child to claim the EIC and the other tax benefits. You agree to let your mother claim him. This means, if you do not claim your son as a qualifying child for the EIC or any of the other tax benefits, your mother can.

16. Rules if you have a qualifying child Example 2. The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child. In this case, you as the child?s parent will be the only one allowed to claim your son as a qualifying child for the EIC and the other tax benefits listed on page 16. The IRS will disallow your mother?s claim to the EIC and any other tax benefits unless she has another qualifying child. Example 3. The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Only one of you can claim each child as a qualifying child. However, you and your mother can split the three qualifying children between you. For example, you can use one child and your mother can use the other two.

17. Rules if you have a qualifying child Example 4. The facts are the same as in Example 1 except that you are only 18 years old. This means you are a qualifying child of your mother. Only your mother may be able to treat your son as a qualifying child to claim the EIC. If your mother meets all the other requirements for claiming the EIC, she can treat both you and your son as qualifying children for the EIC. Example 5. The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Because your mother?s earned income is too high for her to claim the EIC, only you can claim the EIC using your son.

18. Rules for Divorced or Separated Parents A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption but not the EIC) if all of the following apply: The parents Are divorced or legally separated under a decree of divorce Are separated under a written agreement Lived apart at all times during the last 6 months of the year The child received over half his support from the parents The child is in the custody of one or both parents The divorce or separation decree states that the noncustodial parent can claim the child as a dependent or the custodial parent signs a written statement that he or she will not claim the child that year

19. Rules for Divorced or Separated Parents If those rules apply, and only if, the tax benefits may be separated The noncustodial parent may claim the Exemption Child tax credit BUT NOT the head of household status, dependent care benefits, or EITC. This does not apply if the child is in fact a qualifying child under the normal rules (for example, residency)

20. Rules for Divorced or Separated Parents Example 6. You, your husband, and your 10-year-old son lived together until August 1,2005, when your husband moved out of the household. In August and September, Your son lived with you. For the rest of the year, your son lived with your husband. Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship and age tests for both of you. You and your husband are not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents does not apply. You and your husband will file separate returns. Your husband agrees to let you treat your son as a qualifying child. This means, if your husband does not claim your son as a qualifying child for any of the tax benefits, you can claim him as a qualifying child for any tax benefit for which you qualify. However, you cannot claim head of household filing status because you and your husband did not live apart the last 6 months of the year. As a result, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses

21. Rules for Divorced or Separated Parents Example 7. The facts are the same as in Example 6 except that you and your husband both claim your son as a qualifying child. In this case, only your husband will be allowed to treat your son as a qualifying child. This is because, during 2005, the boy lived with him longer than with you. You cannot claim the EIC for persons either with or without a qualifying child. However, because you and your husband did not live apart the last 6 months of the year, your husband cannot claim head of household filing status. As a result his filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses.

22. Rules for Divorced or Separated Parents Example 8. You, your 5-year-old son, and your son?s father lived together all year. You and your son?s father are not married. Your son is a qualifying child of both you and his father because he meets the relationship, age, and residency tests for both you and his father. You earned $8,000 and your son?s father earned $18,000. Neither of you had any other income. Your son?s father agrees to let you treat the child as a qualifying child. This means, if your son?s father does not claim your son as a qualifying child for the EIC or any of the other tax benefits, you can claim him as a qualifying child for the EIC and any other tax benefit for which you qualify.

23. Rules for Divorced or Separated Parents Example 9. The facts are the same as in Example 8 except that you and your son?s father both claim your son as a qualifying child. in this case, only your son?s father will be allowed to treat your son as a qualifying child. This is because his AGI, $18,000, is more than your AGI, $8,000. You cannot claim the EIC for persons either with or without a qualifying child.

24. Rules for Divorced or Separated Parents Example 10. You and your 5-year-old son lived with your mother all year. Under the rules for children of divorced or separated parents, your son is the qualifying child of your husband, who can claim an exemption and the child tax credit for the child if he meets all the requirements to do so. Because of this, you cannot claim an exemption or the child tax credit for your son. However, your ex-husband cannot claim the boy as a qualifying child for head of household filing status, the credit for child and dependent care expenses, or the EIC. You and your mother did not have any child care expenses, but the boy is a qualifying child of both you and your mother for the EIC and head of household filing status because he meets the relationship, age, residency, and support tests for both you and your mother. (Note: The support test does not apply for the EIC.) However, you agree to let your mother claim your son. This means, if you do not claim your son as a qualifying child for the EIC or head of household filing status, your mother can claim him as a qualifying child for each of those tax benefits for which she qualifies.

25. Rules for Divorced or Separated Parents Example 11. The facts are the same as in example 1 except that you and your mother both claim your son as a qualifying child for the EIC and head of household filing status. You as the child?s parent will be the only one allowed to claim your son as a qualifying child for these tax benefits. The IRS will disallow your mother?s claim to these tax benefits unless she has another qualifying child.

26. If you do not have a qualifying child You must be at least 25, but under 65 years old Must have lived in the US more than 6 months You cannot be the dependent of another You cannot be the qualifying child of another

27. EITC (cont.) The EITC ranges from 1- 4,300

28. Figuring the EITC The amount of EITC is determined by your earned income All 1040 forms allow earned income credit. Most credits for those with children require the 1040A The IRS will figure the credit for you, if you wish

29. Disallowance of EITC The IRS may not allow your EITC Math or clerical error-2 years Adding incorrectly, failing to provide the correct social security number Fraud-10 years You must file form 8862 with your EITC/tax return when you are again eligible

30. EITC (cont) Mistakes commonly made Sharing ?extra? children to claim more credit Living with relatives and both claiming the children Forgetting to file an 8862 Filing with the incorrect filing status

31. EITC (cont) If you file incorrectly for the EITC, you may receive a paper exam notice. Try to provide the paperwork requested or contact an attorney to assist you. Make sure that if contacted you respond

32. Injured Spouse Relief Form 8379, filed with return If a spouse has a tax claim from before marriage, or on unpaid child support or student loans Allows you to file correctly You get a refund, spouse pays debt The IRS figures the refund according to income Helps to receive EITC because filing MFS does not allow receipt of EITC

33. Reminders Taxes are due April 17 Everyone is entitled to one automatic extension You can file your taxes for free You are not always required to file taxes, depending on your income, but you should file to get money back www. Irs.gov for more information


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