Economy strengthens, jobless claims fall

The number of Americans seeking unemployment fell for a third straight time with record open jobs.

Many of you may not be aware of the fact that you can actually receive an IRS refund greater than the amount of federal withholding that you have had from your wages.

There are a number of factors that can contribute to this happening. However, the Earned Income Tax Credit or EITC is one of the most significant credits available that can provide a refund to a taxpayer greater than their withholding.

EITC is a tax benefit for certain people who work and have earned income that have low to moderate wages. A tax credit is different from a tax deduction in that a tax credit can actually be refundable, putting money into the taxpayers’ hands. The EITC is primarily for those who have qualifying children, but taxpayers may be able to qualify even if they do not have children.

To receive the Earned Income Tax Credit a number of criteria must be met, first of which is to have earned income. Earned income includes wages, salaries, tips and other taxable pay received as an employee.

Net earnings from self-employment and some forms of disability pay also qualify as earned income. In addition, your filing status cannot be married filing separately and you must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.

The credit becomes much more significant if you have a qualifying child.

A qualifying child must meet four specific tests.

The first test is called the relationship test whereby the qualifying child is a son, daughter, stepchild, eligible foster child, or descendent of any of them. Some other more distant non-lineal relationships can also qualify. Adopted children and foster children placed with you by an authorized placement agency or by judgment, decree, or other court order qualify as well.

The second qualifying criteria is that the qualifying child must also be under 19 or if a full-time student under age 24 at the end of the tax year. A child who is permanently and totally disabled at any time during the year qualifies regardless of age. The residency test is the third qualification, and it requires that your child must have lived with you or your spouse if you file a joint return, in the United States for more than half of the year.

The final test is called the joint return test and this requires that the qualifying child must not have filed a joint return, or if they did it was only to claim a refund and they were not required to file a return.

The income limits for the 2021 tax filing year are $51,464 ($57,414 if married filing jointly) with three or more qualifying children; $47,915 ($53,865 if married filing jointly) with two qualifying children; $42,158 (48,108 if married filing jointly) with one qualifying child; and $15,980 ($21,920 if married filing jointly) with no qualifying children. The earned income tax credit is phased out for taxpayers with incomes in excess of these thresholds. Investment income must also be $3,650 or less for the year to qualify as well.

The maximum amount of the refundable credit is $6,728 with three or more qualifying children; $5,980 with two qualifying children; $3,618 with one qualifying child; and $543 with no qualifying children. This credit is designed in part to offset the impact of social security taxes and to act as an incentive to encourage working.

Numerous families who are eligible for EITC do not receive it, leaving substantial unclaimed tax dollars. So make sure that you take the time and complete the Schedule EIC and review the form to make sure you qualify. This can be a very lucrative tax credit and helps those who may be struggling financially. Make sure that you take advantage of this additional tax savings opportunity for families if you qualify!

To receive the Earned Income Tax Credit a number of criteria must be met, first of which is to have earned income. Earned income includes wages, salaries, tips and other taxable pay received as an employee.