Qualifying for earned income and the Earned Income Credit

Aug 26 2013 - 4:57pm

To qualify for the Earned Income Credit you must have "earned income." Taxable income and earned income are handled differently when qualifying for the Earned Income Credit. There are two ways a taxpayer can have earned income. A taxpayer works for someone who pays them or runs a business or a farm. Taxable earned income includes:

* Wages, salaries, tips and other taxable employee pay;

* Union strike benefits;

* Long-term disability benefits received prior to minimum retirement age;

* Net earnings from self-employment if:

* You own or operate a business or a farm or

* You are a minister or member of a religious order

* You are a statutory employee and have income.

Examples of Income that are Not Earned Income:

* Pay received for work while an inmate in a penal institution

* Interest and dividends

* Retirement income

* Social security

* Unemployment benefits,

* Alimony and

* Child support.

In addition to having "earned income," a taxpayer must qualify to receive the Earned Income Credit. To qualify for Earned Income Tax Credit, or EITC, you, and your spouse if married and filing a joint return, must meet all of the following rules for 2013:

* Have a Social Security Number that is valid for employment

* Cannot file as married filing separatly

Must be:

* a U.S. citizen or resident alien all year or

* a nonresident alien married to a U.S. citizen or resident alien, file a joint return and choose to be treated as a resident alien

* Cannot be the qualifying child of another person

* Cannot file Form 2555 or 2555-EZ (related to foreign earned income)

* Your adjusted gross income and earned income must meet the following limits:

* $46,227 ($51,567 married filing jointly) with three or more qualifying children,

* $43,038 ($48,378 married filing jointly) with two qualifying children,

* 37,870 ($43,210 married filing jointly) with one qualifying child,

* $14,340 ($19,680 married filing jointly) with no qualifying children and

* Your investment income must meet or be less than $3,200.

The above section is an example for married filing jointly in tax year 2013. The EITC credit is available for head of household, qualifying widows and single taxpayers.

The Internal Revenue Service has an EITC Assistant tool that allows for you to check if you qualify for EITC. This tool can be accessed at the following link for 2012:





This tool will be updated in January 2013 to cover the 2013 tax year. The IRS makes it easy to know if you qualify for the EITC with the Interactive EITC and filing status tools.

Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at tracystaxservice@yahoo.com.

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