Many persons wanting an ITIN number don’t know that the Earned Income Credit or the EIC is a tax benefit offered to people whose income levels are not that high. If you earn amounts that are not greater than the values specified by the IRS, you are eligible for this credit. A credit has the same purpose as a deduction, but the two are different. A deduction reduces your taxable income whereas a credit directly reduces the taxable amount. So if you avail the EIC, you will be paying a lower amount in taxes.
Earned income includes wages, salaries, tips, self-employment earning and the retirement or disability benefits. The credit is applicable on all of these.
The EIC is a refundable credit, which implies that if you tax amount is less than the credit, you will be entitled to a refund.
There are certain requirements, which have been imposed by the IRS. You will have to meet all of these and only then you will be eligible for an EIC.
- Your AGI must be less than a certain value, which is different for every individual and depends on your qualifying children and filing status.
- You should have an SSN, which is an abbreviation of the Social Security number. Your spouse and your dependant must also have a valid SSN. Apply for one if you are eligible for a social security number, and then file your return. In case you are not eligible for an SSN, you will need the ITIN Number or Individual Tax Identification Number, but then you will not be eligible for EIC.
- You have to be a US citizen or resident for the entire year for which you are paying taxes. If your spouse is a US citizen or radiant, you can still avail the credit, provided the two of you file jointly.
There are certain situations in which you cannot qualify for an Earned Income Credit.
- You are married, and you and your spouse file separately.
- You use the ITIN Number or Individual Tax Identification Number for paying your taxes.
- You are a non-resident alien.
- You file the 2555 or the 2555-Ex form, which excludes foreign housing costs and foreign errand income.
- Your total investments are less than a certain amount.
You can avail the EIC when you file any of the 1040 forms. A worksheet will be attached with it, which you can use to calculate the credit amount which you will get. If you want to avoid the math, IRS can also do it for you. In this case, you will have to leave certain fields blank such the overpaid amount, the refund amount and the tax payable balance. If you have any queries, take help from an accountant.
The Earned Income Credit can be calculated when you fill out the attached worksheet. Refer to the table at the end of it, and from the worksheet result, determine your credit amount. You will also need your filing status and number of dependants for this.
If you need more information about our accounting and tax services, please contact us at 407-344-1012. Freedomtax Accounting’s staff has been providing honest accounting services and tax services for 15 years. Our Orlando accounting and tax firm has its main offices in Kissimmee, FL. Our services are provided nationwide, but mainly in the Central Florida market to areas like Orlando, South Orlando, Kissimmee, St. Cloud, Poinciana, Clermont, Davenport, and Hunters Creek, FL. Our tax accountants and IRS enrolled agents (irs ea) specialize in corporate accounting and bookkeeping, tax services, tax preparation, back taxes help, tax debt relief, tax resolution, tax planning, itin numbers, incorporations, and non profit 501c3 tax exempt status applications.