IRS Kicks Off EITC Awareness Day
Who said the IRS has no heart? On January 29th, the agency paired up with the organization, Community Partners, to host the Earned Income Tax Credit Awareness Day. The EITC is a tax credit for individuals who do not earn high incomes. Kicking off the festivities, Commissioner Douglas Shulman remarked, “As part of the economic recovery efforts, there have been important changes to expand EITC to benefit taxpayers. Today, more than ever, hard-working individuals and families can use a little extra help. EITC can make the lives of working people a little easier.” In a recent telephone interview, Director of the IRS’s Electronic Tax Administration and Refundable Credits Office David Williams, lauded the refundable credit as “one of the largest and most effective antipoverty programs” initiated by the government, pointing out that the IRS uses the EITC to disseminate benefits, not to expand the tax base.
Tax preparers who must meet continuing education tax requirements, such the CPA or enrolled agent, are more than familiar with the EITC, which has been around for 36 years. The American Recovery and Reinvestment Act strengthened this credit in 2009. While most tax CPE courses required for EA certification have been updated to reflect the latest changes, the IRS is urging enrolled agents and other tax professionals to bone up on the following 9 facts about the EITC.
(1) EITC qualification rules should be reviewed yearly to determine a taxpayer’s eligibility, since taxpayers’ financial, marital or parental situations can change from year to year.
(2) The credit could be worth up to $5,666. EITC can reduce the federal tax owed, and also result in a refund. The amount of the EITC is based on earned income and the number of qualifying children at home. Last year the average credit was approximately $2,100.
(3) Individuals eligible for EITC must file a federal income tax return (even if they are not required to do so) and then specifically claim the credit. The must also include Schedule EIC, Earned Income Credit, when filing Form 1040 or, if filing Form 1040A, use the EIC worksheet.
(4) Individuals with the filing status “Married Filing Separately” do not qualify for EITC.
(5) The taxpayer, including the spouse – if filing a joint return – and any children listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
(6) An individual must have earned income to qualify. Earned income includes income either paid as a wage or accrued through self-employment, farming or disability.
(7) Married couples and single people without children may qualify, but must meet all age and residency requirements and dependency rules.
(8) Special rules exist for members of the Armed Forces in combat zones. Military members have the option of including their nontaxable combat pay in earned income for the EITC. In this event, the combat pay remains nontaxable.
(9) The IRS has made it easy for individuals to determine whether they qualify with a tool called EITC Assistant. This program, available on the IRS website, removes much of the guesswork from eligibility rules and will even help individuals estimate the amount of their EITC.
These and other facts about EITC are usually part of any standard EA CPE or Tax CPE curriculum. As enrolled agents and other professionals working on behalf of taxpayers search for ways to help people who continue struggle in today’s climate, the EITC is a viable tax strategy.
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Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.