Are You Eligible for a Tax Credit?

Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes.

Taxpayers should consider their eligibility for the credits listed below:

• The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.
• The Child and Dependent Care Credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
• The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
• Adoption Credit Adoptive parents may qualify for a tax credit of up to $11,390 for qualifying expenses paid to adopt each eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. For more information, see the instructions for Form 8839, Qualified Adoption Expenses.
• Credit for the Elderly or the Disabled This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see IRS Publication 524, Credit for the Elderly or the Disabled.
• Savers Credit (formally called the Retirement Savings Contribution Credit) You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. For more information, see IRS Publication 590, Individual Retirement Accounts.

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check the instructions for Form 1040, the listed publications, and additional information that is available on the IRS Web site at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www .irs.gov.

Links:

• 1040 Central
• Publication 596, Earned Income Credit (EIC) (PDF 281K)
• Publication 972, Child Tax Credit (PDF 128K)
• Publication 503, Child and Dependent Care Expenses (PDF 167K)
• Publication 524, Credit for the Elderly and Disabled (PDF 140K)
• Publication 970, Tax Benefits for Education (PDF 368K)
• Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
• Form 1040 Instructions (PDF 1,101K)

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Rules For The Earned Income Credit

The Earned Income Credit (EIC)

The Earned Income Credit (EIC) is a refundable credit for low-income taxpayers who may or may not have a qualifying child. The EIC is is directly subtracted from your total tax, and it can be refunded even if you have no tax liability.

Here are the Adjusted Gross Income (AGI) limits to qualify for the EIC:

• $37,783 ($39,783 for married filing jointly) if you have more than one qualifying child,

• $33,241 ($35,241 for married filing jointly) if you have one qualifying child, or

• $12,590 ($14,590 for married filing jointly) if you do not have a qualifying child.

Rules For A Qualifying Child

Here are the rules for the EIC:

1.) You must have earned income. If you file Married Filing Jointly (MFJ), this rule is met if you or your spouse have earned income.

2.) Your earned income and AGI must be under the limits posted above.

3.) You cannot be the qualifying child of another person.

4.) You must have a Social Security number that allows you to work.

5.) The Social Security number of each person you claim as your qualifying child must be included on Schedule EIC.

6.) Your qualifying child or children must have lived with you in the U.S. for at least half of the year. If you are in the military and on extended leave outside of the U.S. are considered to be in the U.S. during the duty period.

7.) You cannot file Forms 2555 or 2555-EZ, which are for foreign earned income.

8.) You must be a U.S. citizen or resident alien the entire year.

9.) You cannot have more than $2,900 in investment income. This includes interest, dividends, net income from rent, net capital gains, and net passive income that is not self-employment income.

To qualify for the EIC, you must meet all of these requirements. Even if you are not required to file, you still could qualify for the EIC. To get the credit though, you must file a return.

Tim