federal income tax credit accepted by the United States or earned income credit ( EITC or EIC ) is a tax credit that can be returned for individuals and couples who work low to moderate, especially those with children. The amount of EITC benefits depends on the recipient's income and the number of children. For a person or spouse to claim one or more persons as a child of their qualifications, requirements such as relationships, ages, and shared residencies must be met. In fiscal year 2013, working families, if they have children, with annual income below $ 37,870 to $ 51,567 (depending on the number of dependent children) may be eligible for federal EITC. A childless worker earning less than $ 14,340 ($ 19,680 for a married couple) can receive very little EITC benefits. US tax forms 1040EZ, 1040A, or 1040 can be used to claim EITC without the qualification of children. To claim credit with eligible children, a 1040A or 1040 form must be used in conjunction with the attached EITC Annex.
The EIC phase slowly, has a medium-to-high plateau, and then gradually slower than the phased phase. Since the credit phase comes out at 21% (more than one child qualification) or 16% (one qualified child), it is always better to have a dollar more than the actual salary or wage (although technically, because the EIC table moving with a fifty dollar increase, it's always better to have a pay rise or extra fifty dollars wages) consider EITC only. If the EITC is combined with several other proven programs such as Medicaid or Provisional Relief for Families in Need, it may be that the marginal tax rate is approaching or exceeding 100% in rare circumstances depending on the circumstances of the residence; otherwise, in certain circumstances, net income may rise faster than wage increases because the EITC phase is at.
For the 2013 tax year, the maximum EITC benefit for one person or multiple unqualified submissions is $ 487. The maximum EITC with one eligible child is $ 3,250, with two children, it is $ 5,372, and with three or more children which is eligible, it is $ 6,044. This amount is indexed every year for inflation.
The income tax credit earned has become part of the political debate in the United States about whether raising the minimum wage or improving EITC is a better idea. In a random survey of 568 members of the American Economic Association in 2011, about 60% of economists agreed (31.7%) or agreed with provisos (30.8%) that the income tax program should be expanded.
Video Earned income tax credit
Overview
Stipulated in 1975, the EIC was initially modestly expanded by tax laws on a number of occasions, including the Tax Reform Law published in 1986, and expanded further in 1990, 1993, 2001 and 2009, regardless of whether the measures in the general tax raised (1990, 1993), taxes derived (2001), or abolishing other deductions and credits (1986). Currently, EITC is one of the largest anti-poverty tools in the United States. Most measures of income, including poverty levels, do not take credit into account.
Eligible children can be daughters, sons, stepchildren, or further descendants (such as grandchildren, great grandchildren, etc.) or brothers, sisters, half-brothers, brothers, half-siblings , stepbrother, or further descendants (such as nieces, nieces, nephews, nieces, etc.). Eligible children may also be in the process of being adopted provided they have been placed legally. Foster children are also counted as long as the child has been formally placed or is a member of one's extended family. Younger single parents can not claim EIC if they are also claimed to be eligible children from their parents or other elderly relatives, which can occur in some large family situations. This restriction does not apply to married couples who claim an EIC with a child, even if one or both partners are under the age of 19.
A person claiming an EIC must be older than a qualified child unless "child" is classified as "permanent and total disability" for the tax year (the doctor declares a year or more). Eligible "children" can reach and include 18 years of age. A qualified "child" who is a full-time student (one semester or equivalent) can reach and include the age of 23 years. And someone who is classified as "permanently and completely disabled" (one year or more) can be of any age and count as a qualified "child" if other requirements are met. Parents claim their own child (ren) if eligible unless they release this year's credit to a member of the extended family with a higher adjusted gross income. There is no support test for EIC. There are six months plus one day residency test together.
In the 2009 American Recovery and Reinvestment Act, the EIC is temporarily extended to two specific groups: married couples and families with three or more children; This expansion was extended until December 2012 by H.R. 4853, Tax Assistance, Unemployment Insurance Endorsement and the Employment Creation Act of 2010. Effective for the 2010, 2011, 2012 and 2013 filing season, EIC supports these taxpayers by:
- Increase benefits for larger families by creating new or "third tier" categories of EIC for families with three or more children. At this rate, the crediting phase in 45 percent of revenue (up from 40 percent), effectively raising the maximum credit for these families is almost $ 600.
- Increased mortgage levy by raising the threshold of earnings in which the EIC starts out of married couples to $ 5,000 above the number for unmarried reporters, giving MFJ filers longer. The combined highlands and the outgoing phase spans for the married archives still have not doubled for the single rapporteur, and thus there is still a marriage punishment, just less than usual.
In early 2012, 26 countries have established EITC countries: Colorado, Connecticut, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, Vermont, Virginia, and Wisconsin. Some EICs of this country can be restored, and some do not. In addition, several small local EICs have been enacted in San Francisco, New York City, and Montgomery County, Maryland.
Maps Earned income tax credit
Earned earnings
Earnings earned are defined by the United States Internal Revenue Code as income received through personal effort, with the following as the main source:
- Wages, salaries, tipping, commissions, and salaries of other taxable employees.
- Net income from entrepreneurs.
- Gross revenue is accepted as an employee by law.
- Disability payments through disability plans of private company owners received before the minimum retirement age (62 years 2011).
- The unacceptable battle salary received by members of the US armed services that he or she chooses to include for EIC calculation purposes. This is an all-or-nothing selection. For each tax year, service members must choose to include all combat wages or none of them.
Qualify descendants
A person or spouse who claims EIC with one or more eligible children must complete and attach their EIC Schedule to 1040 or 1040A. This form asks the child's name, the name of social security, the year of birth, whether the age of "children" older than 19 to 23 are classified as students for this year (full-time status for at least one long semester or equivalent period of time) children "are classified as disabled year-round (doctors declare a year or more), a child's relationship with the claimant, and the number of months the child lives with the plaintiff in the United States.
To claim a person as a qualified child, the following terms of relationship, age, and shelter must be met.
Relationships
In the case of married couples applying jointly, if one partner is associated with the child by one of the relationships below, both partners are deemed related to the child.
Plaintiffs must be related to their child's qualifications through blood, marriage, or law. Eligible children can be:
- one's daughter, son, stepchild, or further offspring (like grandchildren, great grandchildren, etc.),
- or brothers, sisters, sisters, brothers, half-brothers, half-siblings, or further descendants (such as nephews, nieces, nephews, great nieces, etc.),
- or adopted child officially placed by an Indian tribal agent, court, or government. Official placement agencies include state-licensed tax-exempt organizations as well as organizations authorized by Indian tribal governments to place Native American children.
- or the adopted child, including a child in the process of being adopted provided he/she has been placed legally.
A child can be classified as a qualifying child from more than one adult family member, at least initially. For example, in big family situations, both parents and uncles can meet the initial standards of relationship, age, and residence to claim a particular child. In such a case, there are further rules: If a single parent or both parents, whether married or not, can claim the child (residence and age) but choose to relieve the child to a non-parent such as grandparents uncle or aunt, these non-parents can claim children only if they have higher adjusted gross income (AGI) than parents who have lived with the child for at least six months.
This still remains the parent's choice. Provided that the parent has been living with the child for at least six months and one day, parents can always choose to claim their child for the purpose of earning credits earned. In a tiebreak situation between two unmarried parents, the tiebreak goes to the parent who lives with the child for the longest. In a tiebreak between two non-parents, the tiebreak goes to a person with a higher AGI. And in a tiebreak between a parent and not a parent, the parent wins by definition. This tiebreaker situation only occurs if more than one family member actually filed a tax return in which they claimed the same child. On the other hand, if the family can agree, according to the rules above and below, they may engage in a small amount of tax planning for which family member claims the child.
Age
Single parents younger than age 19 who live in large family situations are potentially claimed to be "children" who qualify from an older relative. And single parents under the age of 24 who are also full-time students (one semester or equivalent) who live in big family situations are also potentially claimable. If so, the younger single parent can not claim the EIC. This rule does not apply to married couples who claim an EIC with a child, even if one or both partners are under the age of 19. (This rule also does not apply if older relatives are not required to file tax returns, and then do not file or only files to receive the full tax returns held.)
Generally, one sibling claims the other as a child of their qualification should be older. In the case of married couples applying for a joint return, only one of the couples should be older. The exception to the older rule is the case of a qualified child classified as "permanent and total disability" (the doctor declares a year or more). Such "children" can be of any age and age requirements are considered automatically met (of course relations and shared residency requirements still have to be met).
The standard rule is that eligible "children" must be under the age of 19 at the end of the tax year. That is, younger people can be 18 years old and 364 days by December 31 and age requirements are met.
This age limit is extended to eligible "children" who are also full-time students for sections of the five calendar months. These young adults need only be under the age of 24 at the end of the tax year for age requirements to be met (terms of relationship and residence still to be met). That is, young adults who work full-time for at least part of five different months can be 23 years and 364 days by December 31 and meet the age requirement to be "children" who qualify others. The standard autumn semester of a university, where classes begin at the end of August and continues through September, October, November, and early December, is counted as part of five calendar months. And similar conclusions apply to the standard spring semester. However, five months need not be consecutive and can be obtained with a combination of shorter periods. Full-time students are students enrolled for the number of hours or courses that are considered to be schools as a full-time attendance. High school students working in co-op jobs or those in vocational high school programs are classified as full-time students. Schools include technical schools, commerce, and mechanics.
A person who is classified as "permanent and total disability" (the doctor states a year or more) may be of any age and age requirements automatically met. Furthermore, the definition of "permanent and total disability" is that a person has a mental or physical disability, can not engage in a large beneficial activity, and the doctor has determined that the condition has been ongoing or is expected to last a year or more (or may result in death ).
Plaintiffs must stay with their qualified children (ren) in fifty states and/or the United States District of Columbia for more than half a tax year (per instruction, six months and one day registered as 7 months in the EIC Schedule). US military personnel stationed outside the United States with an extended active duty are considered living in the US for EIC purposes. An active duty extension means the person is called for unlimited time or for a period of more than 90 days (which is still deemed to be actively renewable even if the period lasts less than 90 days).
Temporary absenteeism, either for plaintiffs or children, for schools, hospitals, business trips, vacations, short periods of military service, or imprisonment or detention, is ignored and counts as home stay time. "Temporary" may be unavoidably vague and generally hinge or whether the plaintiff and/or child are expected to return, and the IRS does not provide substantial guidance so far. If the child is born or died in the year and the plaintiff's home is a child's home, or a potential home, for the whole time the child lives throughout the year, this is considered a life with the plaintiff, and per instruction, 12 months is included on the EIC Schedule.
Unlike rules for claiming dependent, there is no rule that a qualified child does not support himself. A child who supports himself can still qualify as a child eligible for EIC purposes. There are exceptions to married "children". If a child who declared eligible to marry, the plaintiff must be able to claim this child as a dependent (and the married couple must have a low enough income so that they do not have to file a refund and do not file or simply file for the purpose of claiming a refund of tax-deductible tax ).
Other requirements
Investment income should not be greater than $ 3,400 in 2016.
Plaintiff must be a citizen of the United States or a foreign resident. In the case of a joint marriage in which one spouse and one are not, a spouse may elect to treat a non-resident couple as a resident and have all worldwide income subject to US taxes, and shall then qualify for the EIC.
Filers both with and without qualification must live in 50 states and/or the District of Columbia in the United States for more than half a tax year (six months and one day). Puerto Rico, American Samoa, Northern Mariana Islands, and other US territories do not count for this. However, a person who has an extended military duty is deemed to have fulfilled this requirement for the period of duty it serves.
Filters that do not claim eligible children must be between 25 and 64 years old. For married couples without eligible children, only one couple should be within this age range. For one person with eligible children, there is no age requirement per se other than the requirement that one person alone can not be claimed as a child who meets other relative qualifications (see the Age section above). Couples with at least one eligible child are only occasionally classified as claimable by other relatives, especially if a married couple has earned income and elects to claim the EIC.
All complainants and all children claimed must have a valid social security number. This includes social security cards printed with "Valid for work only with INS authorization" or "Valid for work only with DHS authorization."
Single, Head of Household, Widow of Qualification (er), and Filing Married Together are all the same filing status applicable to EIC. In fact, depending on the earnings of both partners, Married Filing Jointly can be profitable in some circumstances because, in 2009, the exit phase for the MFJ starts at $ 21,450 while the phase-out starts at $ 16,450 for other filing status. Married married couples can apply for MFJ even if they live apart year-round and even if they do not share income or expenses for the year, as long as both partners agree. However, if both partners disagree, or if there are other circumstances such as domestic violence, spouses who live separately with children during the last six months of the year and who meet other requirements may apply as the Head of the Household. Alternatively, for separated couples who are still legally married, they may consider visiting an accountant at a separate time and may even sign a joint return on separate visits. There is even an IRS form that can be used to request direct deposits to up to three separate accounts. In addition, if a person gets a divorce on December 31, that will bring, because it is a marital status on the last day of the year that controls for tax purposes. In addition, if a person is "legally separated" under state law by December 31, it will also bring. The only filing status that is not eligible for EIC purposes is to marry separately.
The EIC phase is greater than the revenue received or adjusted gross revenue.
A married couple in 2010, whose total income is only $ 21,500 but who has more than $ 3,100 investment income, will receive a maximum credit for the number of children their qualifications, but because of the rule that for each plaintiff - whether single married, with or without children - that investment income can not be more than $ 3100, will instead receive zero EIC. This is an edge case, but there is a range of revenues and situations where an increase in investment dollars can result in a loss of dollars after taxes. (Instead of $ 21,500, the exit phase for Single, Head of Household, and Qualifying Widow (er) starts at $ 16,450.)
Under normal circumstances, the outgoing phase EIC is relatively slow, at 16% or 21% depending on the number of children.
Restrictions for reckless or fraudulent claims
A person or spouse will be prohibited by EIC for two years if they claim the EIC when not eligible and the IRS determines "the error is due to careless or deliberate ignorance of EIC rules." A person or spouse will be annulled for ten years if they make a false claim. Form 8862 is required after this time period to be recoverable. However, this form is not required if the EIC is reduced solely by mathematical or administrative errors.
Example for 2012 from IRS Pub. 596
Cynthia and Jerry Gray have two children aged 6 and 8. For the 2012 tax year, one spouse gets $ 10,000 in wages and the other spouse earns $ 15,000, plus the spouse receives $ 525 on interest from a savings account. Because they are in the outgoing phase range, their EIC will be stalled due to higher earned revenues or adjusted gross income. So, they will search the EIC table $ 25,525 for MFJ with two children, and this amount is $ 4,557. Because they claim children, the Grays also need to enclose an EIC Schedule for their tax returns which will require each child, child's name, social security number, year of birth, relationship with spouse, and month of stay with spouse in America. Declare for 2012. If Gray uses 1040A, they will enter $ 4,557 on line 38a. If they use form 1040, they will enter $ 4,557 on line 64a.
Graph, 2006
Impact
Taxes and average household income
Benefits of welfare
At a cost of $ 56 billion in 2013, EITC is the third largest social welfare program in the United States after Medicaid ($ 275 billion federal and $ 127 billion of state expenditure) and food stamps ($ 78 billion). Nearly 27 million American households receive more than $ 56 billion in payments through EITC in 2010. This EITC dollar has a significant impact on the lives and communities of the people who work for the lowest payments that mostly pay the payroll taxes they may pay. The Census Bureau, using an alternative calculation of poverty, found that EITC raised 5.4 million above the poverty line in 2010.
The stimulus effects of EITC and other consumption improvement policies have been challenged by more recent and meticulous studies. Haskell (2006) finds that the unique expenditure pattern of lump-sum tax credit recipients and the increasing global supply chain for consumer goods is counter-productive to produce high and localized multipliers. He placed a local multiplier effect somewhere in the range 1.07-1.15, more in line with typical economic returns. The lower multiplier is because recipients emphasize durable, long-lasting "durable" purchases that are usually produced elsewhere, compared to locally produced products and services such as agricultural products or restaurant visits. However, Haskell points to the silver lining: there may be more important benefits from recipients who use credit for savings or investments in large ticket purchases that promote social mobility, such as cars, tuition, or health care services.
Due to its structure, EITC is effective in targeting aid to low-income families in the bottom two quintiles - 0-40% of households. In contrast, only 30% of the minimum wage workers live in families near or below the federal poverty line, as most are teenagers, young adults, students, or couples who complete their studies or family income. Opponents of the minimum wage argue that it is a less efficient way to help the poor than to adjust the EITC.
The EITC follows a graphic benefit pattern for climbing hills, traveling along the plateau, and then downhill slower than going up. For example, a married couple with two eligible children and an annual income of seven thousand dollars will receive an EITC of $ 2,810 (uphill). At fifteen thousand dollars, the couple will receive an EITC of $ 5,036 (plateau). And at twenty-five and thirty-five thousand dollars, the same couple with their two children will receive an EITC of $ 4,285 and $ 2,179, respectively.
One person (such as a single parent, aunt, uncle, grandparents, older sister, etc.) Climb to the hill at the same rate and will receive the same maximum EITC for two eligible children of $ 5,036 in the highlands. But single people have a shorter plateau. And thus, one person with two qualifying children and twenty-five and thirty-five thousand incomes will receive an EITC of $ 3,230 and $ 1,124 each (downhill).
EITC phases out at 16% with one eligible child and at 21% for two children and three or more children. So it's always better to have an extra fifty dollars in actual earnings (tables for the EITC step with a multiple of fifty dollars).
The GRAPHICAL highland range for Married Filing Jointly continues for five thousand dollars longer than the plateau for other filing status and thus MFJ can be profitable for multiple revenue ranges. Single, Head of Household, and Qualifying Widow (er) are all legitimate filing statuses and are eligible to claim EITC. The only disqualifying status is Married Filing Separately. However, couples can file as Married Filing Jointly even if they live apart for the whole year if married legally and both agree.
Health impact
A systematic review of the effect of tax credit on work on adult health outcomes conducted through Cochrane Collaboration found no evidence for EITC effects on health outcomes (except for mixed evidence supporting tobacco reduction) in adults. However, this study concludes that further evidence is needed to establish the EITC effect on health outcomes with confidence.
Cost
The direct cost of EITC to the US federal government is approximately $ 56 billion in 2012. IRS estimates that between 21% and 25% of this cost ($ 11.6 to $ 13.6 billion) is due to improperly issued EITC payments to recipients who are not eligible for EITC benefits they receive. For fiscal year 2013, IRS pays approximately $ 13.6 billion in false claims. In total the IRS has paid more than $ 132.6 billion in EITC over the last ten years.
The direct fiscal costs of the EITC can be partially offset by two factors: new taxes (such as payroll taxes paid by employers) generated by new workers withdrawn by EITC into the workforce; and taxes resulting from additional expenditures made by families receiving income tax credits received.
Some economists have noted that EITC may possibly lead to a reduction in the spending of rights resulting from individuals deprived of poverty through examination of their EITC benefits. However, since pre-tax income determines eligibility for most state and federal benefits, EITC rarely changes the eligibility of taxpayers for federal or state aid allowances.
Unsecured tax credits
Millions of American families eligible for EITC do not receive it, essentially leaving billions of dollars unclaimed. Research by the Government Accountability Office (GAO) and the Internal Revenue Service shows that between 15% and 25% of eligible households on EITC do not claim their credit, or between 3.5 million and 7 million households (no references cited).
Many nonprofit organizations in the United States, sometimes in partnership with governments and with some public financing, have initiated programs designed to improve the utilization of EITC by raising awareness of credit and assisting in the filing of relevant tax forms. One such example is the Claim! a campaign in Minnesota that was launched in 2006 to help Minnesotans claim EITC.
The State of California requires the employer to notify each employee of the EITC each year, in writing, at the same time the W-2 form is distributed.
Store tax preparation," RAC, "account preparation and fees, third party debt collection
RAL (Refund Anticipation Loans) is a short-term loan on expected tax refund security, and RAC (Refund Anticipation Checks) is a special temporary account to wait to receive a tax refund, which is then paid with a check or debit card from the bank for less cost. The combination of Earned Income Credit, RALs, and RACs has created a major market for the store's tax preparation industry. A 2002 Brookings Institution study of Cleveland taxpayers found that 47 percent of reporters who claimed the EIC bought RAL, compared with 10 percent of those who did not claim the EIC. The tax preparation industry responds that at least half of the RAL customers included in the IRS data actually receive RAC instead.
These financial products have been criticized for various reasons, including price increases for tax preparation, account fees, RAL interest rates, and third party debt collection practices (this was formerly called "cross-gathering" that suggests on practice, but tax preparation firms now seem to be more vaguely referring to practice only as "previous debt"). This practice occurs when one bank issuing RAL or RAC gathers for another. That is, the lender may take all or part of the client's current tax refund for the purpose of third party debt collection, and it is not clear how broad is the type of debt the bank collects. This contrasts with the more limited types of debt collected by the IRS. The practice of one bank that collects debts for another may not be adequately disclosed to a tax preparation client; on the other hand, some clients may fail to disclose obligations that result in government deprivation of their refunds. With RAL and RAC, clients grant the bank first rights on their tax returns, and both carry the same risk from third party bank collections.
Advertising phrases such as "Quick Refunds" have been deemed deceptive and illegal, as these financial products do not speed up remittances beyond the automation of tax return processing routines, and do not make it clear that this is a loan application. Beginning with the 2011 tax season, the IRS announced that it will no longer provide preparation and financial institutions with a "debt indicator" that assists banks in determining whether a RAL application has been approved. Starting with the 2013 tax season, major banks no longer offer RAL but only RAC.
However, the March 2013 article at CNN Money reports that the tax preparation company offers a bunch of financial products similar to RAL. The article further states that, "The NCLC [National Consumer Law Center] also found that some fraudulent tax administrators even offer tax returns on loans to lure taxpayers to their offices, but do not intend to lend them money."
See also
- Capital gains tax
- Minimum revenue is guaranteed
- Negative income tax
- Loan anticipation loan
- Taxation in the United States
- Unearned revenue
References
Further reading
-
Chetty, Raj; Saez, Emmanuel (January 2013). "Teach the Tax Code: Income Response for Experiments with EITC Recipients". American Economic Journal: Applied Economics . 5 (1). doi: 10.1257/app.5.1.1.
External links
Taxpayer information/tools:
- EITC IRS Assistant, which can help determine if a person is eligible for EITC
- IRS 1040 Directive 2010, Obtain Credit Income instruction on pages 45-48, selected worksheets 49-51, table of credit itself 51-58. The only necessary attachment is the EIC Schedule if someone claims a qualified child.
- IRS EIC Schedule. A person or spouse who claims an eligible child (ren) must attach this form to a 1040 or 1040A tax refund.
- IRS Publications 596 - Credit Income Income, publications intended for people who will potentially claim credit.
Organization/campaign:
- National EITC Range Campaign
- The National Public Tax Coalition, the organization that supports the EITC and tries to help ensure people claim it
- Boston EITC Campaign
- Working Family Tax Credits
Background:
- Section 13 ("Retirement, Health, Poverty, Employment, Disability and Other Social Issues" taxes) from the Green Book Ways and Means Committee book provides historical information, including previous EITC parameters. (The version linked here is the 2004 edition. Note: this is not published every year.)
Policy analysis:
- The Congressional Budget Office report for the Senate Finance Committee on "The Impact of Federal Versus Minimum Wage Increase Income for Income Tax Credit" (January 9, 2007)
- New Research Findings on the Impact of Income Tax Credits Provided, Budget Priorities and Policy Center, March 11, 1998
- Earned Income Tax Credits (EITC): Percentage of Total Return on Taxes and Amount of Credits by State of Congressional Research Service (CRS) Report
- Income Tax Credits Earned at Ages 30: What We Know, Steve Holt, Brookings Institute
- The Hidden Welfare State: Tax Expenditures and Social Policy in the United States, Christopher Howard, Princeton University Press, 1997. Howard discusses the reduction of mortgage interest, corporate pensions, EITC, and targeted tax credit jobs as an example of tax expenditure.
Source of the article : Wikipedia
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