How to Calculate Earned Income Credit

How to Calculate Earned Income Credit

How to Calculate Earned Income Credit

After a hard week or two of work, there’s nothing quite like getting your paycheck. Sometimes your paycheck may not feel like much after taxes have been taken out, though.

The Earned Income Tax Credit is designed to benefit workers who have low-to-moderate incomes. To get the credit, you have to meet certain qualifications and file a tax return. If you meet the qualifications, you’ll receive the tax credit as part of your federal tax refund. Even if you don’t qualify for a refund, it can reduce the amount of taxes you owe.

Before you calculate the Earned Income Tax Credit, you should have a sense of whether or not you qualify. If you think you may qualify, you will need to fill out the appropriate tax form and file it so the Internal Revenue Service can process your refund.

Qualifying for the Earned Income Tax Credit

The IRS has several requirements in place for you to be able to take advantage of the Earned Income Tax Credit. The first requirement is that you have earned income. Earned income includes wages from work and long-term disability benefits. Social Security benefits, unemployment income, alimony and child support are not considered earned income.

Another requirement is that anyone listed on your tax return must have a Social Security number, which includes you, your spouse and any qualifying children you list as dependents. You also can't file your tax return as married filing separately. Any other filing status is acceptable.

You also must meet specific income requirements to qualify for the tax credit. These requirements vary from year-to-year. You can't qualify for the Earned Income Tax Credit if you file Form 2555, which is the form for reporting foreign earned income from your tax return, or Form 2555-EZ, which is the form for excluding foreign income on your tax return.

You must also have lived in the United States for more than half the year, which includes all 50 states and D.C., but it does not include Puerto Rico or U.S. possessions. You don't have to have a permanent address, though, and military personnel stationed overseas meet the residency qualification as well.

Determining Whether You Have a Qualifying Child

Many taxpayers wonder, “How much do you get when you claim a child on your taxes?” The answer to that question varies depending on how many children you claim, your situation and your filing status. Claiming one or more qualifying children on your tax return allows you to earn a higher level of income and still qualify for the Earned Income Tax Credit.

To be able to claim a qualifying child, the child needs to be closely related to you by birth or marriage. The child can be a son or daughter, an adopted or foster child, a stepchild or a sibling. The child can also be a descendant of one of those relatives, such as a grandchild. The child must also live with you or your spouse for at least half the year.

The child also must be younger than you or your spouse, and younger than 19 if she is not enrolled in school. Children enrolled in school can be qualifying children until they turn 24. Disabled children do not need to meet the age requirements. A doctor must certify that the child is permanently disabled, though.

Qualifying for the Earned Income Tax Credit Without a Qualifying Child

You can qualify for the Earned Income Tax Credit even if you don’t have a qualifying child. The income limits are lower to qualify, though, if you don’t have children to claim. You also can’t be claimed on someone else’s tax return, and you or your spouse must be 25-to-65-years-old by the end of the tax year.

How to Calculate an Earned Income Tax Credit

The first step in calculating your Earned Income Tax Credit is to file a federal tax return. The form required varies depending on whether or not you have a qualifying child. If you have a qualifying child, you must file a Schedule EIC listing your children along with Form 1040A or Form 1040. If you don’t have a qualifying child, you can use Form 1040EZ, Form 1040A or Form 1040.

You also should have your documentation ready before you or your tax preparer completes your return. You should know the Social Security numbers and birth dates for everyone you are listing on your return. You should also have your tax returns from previous years and all your income statements, including any W-2s and 1099s.

When it comes to how to calculate an earned income credit, the simplest method is to allow the IRS to calculate it for you.

You can also get an estimate of your Earned Income Tax Credit by using the EITC calculator on the IRS website. You need to choose the correct tax year when you use the earned income credit calculator, and you need to be careful to enter all the information requested carefully.

You can also calculate your Earned Income Tax Credit by following the directions in the instructions for the tax form you are completing. For Form 1040, for example, you would follow the directions in the Form 1040 instructions. In general, though, you would start by making sure you meet the guidelines for investment income, which vary from year-to-year. In 2016, for example, you could not have more than $3,400 in investment income to qualify for the tax credit.

The next step is to determine your earned income and compare it to the Earned Income Credit Table for your tax year, which is found in the instructions for your tax form. The table lists your income on the left side and your filing status along the top. The number listed on the chart is your Earned Income Tax Credit.

For example, if you are filing as single and you have one qualifying child, and your earned income is $20,000, your Earned Income Tax Credit for 2017 would be $3,131. If your income were $25,000, your tax credit would be $2,332.

If you need assistance with filing your return and calculating your Earned Income Tax Credit, you can see if you qualify for help from the Volunteer Income Tax Assistance program or the Tax Counseling for the Elderly program. The VITA program assists those who make $54,000 or less per year as well as people with disabilities. The TCE program will assist any taxpayer, but they specialize in working with those age 60 and older.

Exceptions to Claiming the Earned Income Tax Credit

To claim the Earned Income Tax Credit, you must meet all the qualifications. Some types of income may not qualify as earned income, which means you can’t take the tax credit. Disability insurance payments, for example, are not considered earned income. Social Security Disability Insurance, Supplemental Security Income and military pensions are also not considered earned income.

If you are in the military, your nontaxable pay is not considered earned income. Earned income typically includes combat pay, your housing allowance and your allowance for subsistence. You can choose to include combat pay in your calculations for the Earned Income Tax Credit, but this might result in a lower credit.

Members of the clergy typically have to include their housing allowance or the rental value of their home in their net earnings, which means their housing counts as earned income. Clergy members can file Form 4361, though, to have their housing exempted from their earned income calculations, which may result in a higher tax credit.

Finding Your Earned Income Tax Credit for 2018 Taxes

To claim the Earned Income Tax Credit, you need to be below the income levels established by tax law each year. The income levels also vary depending on the number of qualified children you have.

To find out if you should calculate the Earned Income Credit for 2018 taxes, which are filed in 2019, you need to have an income below $15,270 if you have no qualifying children to claim and you are filing as single, head of household or widowed. If you are filing as single, head of household or widowed and you have one qualifying child, your income must be below $40,320. If you have two qualifying children, your income must be below $45,802 and if you have three or more qualifying children, your income must be below $49,194.

If you are married filing jointly, your joint income must be below $20,950 if you don’t have any qualifying children. If you and your spouse have one qualifying child, your joint income must be below $46,010. If you have two qualifying children, your joint income must be below $51,492 and if you have three or more qualifying children, your joint income must be below $54,884.

Another requirement is that your investment income for the tax year is below $3,500. If you meet all the criteria, your maximum tax credit is $6,431 if you have three or more qualifying children, $5,716 if you have two or more qualifying children, $3,461 if you have one qualifying child and $519 if you have no qualifying children.

Finding Your Earned Income Tax Credit for 2017 Taxes

To be able to claim the Earned Income Tax Credit for the 2017 tax year, your income must be $15,010 if you have no qualifying children and you’re filing as single, head of household or widowed. If you are in one of those filing categories and you have one qualifying child, your income must be below $39,617. If you have two qualifying children, your income must be below $45,007 and if you have three or more qualifying children, your income must be below $48,340.

If you are married filing jointly and have no qualifying children, your joint income must be below $20,600. If you have one qualifying child, your joint income must be below $45,207. If you have two qualifying children, your income must be below $50,597 and if you have three or more qualifying children, your income must be below $53,930.

Your investment income must be $3,450 or less to qualify for the credit. The maximum tax credit you can earn if you have no qualifying children is $510. If you have one qualifying child, the maximum is $3,400. If you have two qualifying children, the maximum is $5,616 and if you have three or more qualifying children, your maximum credit amount is $6,318.

Getting Your Refund

Once you’ve claimed the tax credit and finished preparing your taxes, you may qualify for a refund. If you claimed the Earned Income Tax Credit, you would not get your refund before mid-February, per federal law, even if you file your return earlier. You can check the status of your refund on the IRS website and by using the IRS mobile application. The IRS updates their website once per day, and it may take additional time for your bank to process the refund.

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About the Author

Melinda Hill Sineriz is a freelance writer with over a decade of experience. Her work has appeared on Pocket Sense and Sapling. She specializes in business, personal finance, and career writing. She has worked in insurance sales and financial planning, helping families to manage their money and prepare for the future. Learn more about her and her work at thatmelinda.com.