EIC is a refundable credit for low-income taxpayers with earned income. If you qualify for the earned income credit, you may receive a refund even if you had little or no income tax withheld.Earned income tax credit may be worth checking out, but if you think that you can get away with claiming the credit, you might want to think twice.
The earned income tax credit can be very helpful if you have a low salary or do not make a lot of cash each week. If you qualify, you can get a portion of your taxes refunded to you through this clause. Even if you have no tax liability, you may still qualify for a tax refund.
The credit is, however, a bit complicated and will usually take a professional to help to file it. Since the income is low, this may not be a possible option for most taxpayers. There is an online program which can help with the filing call Earned Income Tax Credit Assistant, via the IRS website. Just a few questions and some tax information is all that’s needed and the site can assist you in finding your correct tax bracket/filing status, and will tell you how much you are qualified to get back.
The IRS will refund more money to a tax payer with kids, rather than the individual without children, but it is still possible to get the credit even if you don't have kids.In 2006, a taxpayer's income had to be less than $12,120 if they didn't have children, $32,001 with one child and $36,348 with two or more kids. Married couples filing jointly are allowed to earn $2,000 more in each category and still claim the credit.All wage or salary income, as well as any self-employment earnings, count toward the eligibility limits. So do investment earnings. In fact, if you make more than $2,800 in investment income, you cannot file for the earned income credit.
Married couples who file separate returns are not eligible for the earned income credit. If you are married, but your spouse did not live in your home for the last six months of the year, you may be able to file as head of household and take the credit. But be extremely careful with filing under the “separation rule”. This has become a highly auditable area. The IRS Audit Division has begun requiring “separated” individuals to show proof of separation, i.e. legal separation papers. And if you have no children, you must meet three additional tests before you can claim it: You must be at least 25 years old, but younger than 65 at the end of the tax year for which you are making the claim, you cannot be the dependent of another taxpayer, and you must live in the U.S. for more than half of the tax year.Bear in mind, refund returns are scrutinized by IRS’s Criminal Investigation Division. Tax returns claiming an Earned Income Credit are examined even more closely, since there is so much EIC fraud. There are two major questions that I am asked each year by taxpayers trying to file for EIC who are receiving public assistance from local departments of Social Services.
Will claiming the EIC interfere with my ability to obtain food stamps or other forms of assistance?
No, you can claim the EIC and also receive such forms of assistance as food stamps, TAFDC, and Section 8 rental assistance. However, if the EIC payment you receive is not spent within a certain period of time, it may be counted as an asset and affect your eligibility for these other benefits. Most importantly, if you are caught submitting fraudulent information, you will lose all benefits.
Can legal immigrants claim the EIC?
Yes. Immigrants who are working in the country legally may claim the EIC if they meet the other EIC eligibility requirements and possess a valid Social Security Number, which allows work. An immigrant worker’s main home must be in the United States. Also, immigrant workers’ children must have lived with them in the United States for more than six months out of the year to be able to treat them as qualifying children.
What happens if I make a mistake or error or provide false information in claiming the EIC?
It depends:
- If you made an unintentional mathematical error in your computations, the IRS will likely catch the error and correct your mistake and credit you the proper EIC amount. If you make an unintentional clerical error (e.g., you provide an incorrect Social Security number), the IRS will likely require you to provide the correct number before they release the EIC to you.
- If the IRS decides or determines your error was due to "reckless or intentional disregard of the IRS rules" it can deny your claim and prohibit you from claiming the EIC for the year in which you applied as well as the next two years.
- If the IRS decides that your error was due to fraud (i.e., you intentionally provided false information to the IRS in order to try to claim the EIC when you weren't eligible or a higher amount than you are entitled), the IRS can prohibit you from claiming the EIC for the year in which you applied and the next 10 years.
Making a small unintentional mistake when applying for the EIC should not present a problem. But giving deliberate false information to the IRS when claiming the EIC, is an extremely bad idea.
For anyone who’s EIC filing was denied or reduced in a previous year, you will likely need to complete Form 8862, Information to Claim Earned Income Credit After Disallowance, and attach it to your tax return.
In order to keep the Earned Income Credit program in existence, it is very important that it be fair and that only people who are eligible claim it on their tax returns. Fraud (e.g., individuals who attempt to claim the EIC when they, in fact, know they are not eligible) is very damaging to the EIC program as it reduces the public and lawmakers' desire to support it.
If you have good reason to believe that someone is claiming the EIC in a fraudulent manner (for example, they claim a child on their tax return who is not their own or for whom they are not responsible) you can report it to the federal government by calling the Internal Revenue Service's hotline for tax fraud. The phone number is 1-800-829-0433.
If you are willing to try to “beat the system” and cheat the government and those hard working friends and relatives out of their tax dollars, then you better be prepared to pay the piper when the IRS axe falls. You’ll not only be losing all your DSS benefits; you’ll find yourself in the position of having to hire a tax firm to dig you out of the financial hole that will result. Would it be worth the temporary monetary gain? And, do you really want the IRS on your back for the next ten years or more?
Sharon Raines, Sr. Financial Advisor/Tax Preparer
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