How to Calculate Low Income Tax Offset
The Internal Revenue Service offers the Earned Income Tax Credit as a refundable federal income tax credit for low-income working individuals and families. Congress originally passed EITC legislation in 1975 to offset the burden of Social Security taxes. As earning income is necessary for eligibility, the EITC program also provides an incentive to find work. If the EITC is higher than the amount of taxes owed, it results in a tax refund to those who both claim and qualify for the credit.
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Instructions
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Meet qualifications. You must be between the ages of 25 and 65 years old at the end of the year. If you are married, either you or your spouse must be between 25 and 65.
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Meet the income requirement. The main requirement is an adjusted gross income of less than $38,646 ($41,646 married filing jointly) with two or more qualifying children; $33,995 ($36,995 married filing jointly) with one qualifying child; or, $12,880 ($15,880 married filing jointly) with no qualifying children.
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Determine your credit. You can have the IRS compute this for you or compute it for yourself. To do this, use the Earned Income Credit Worksheet (EIC Worksheet) provided in the instructions for Form 1040. The booklet contains an EIC table.
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Verify eligibility and amount by using the IRS' EITC Assistant web tool. You will need a valid Social Security number and proof of earned income. You cannot be married and filing separately, and must be a U.S. citizen, resident alien or nonresident alien married to a U.S. citizen.
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Elect to have your nontaxable combat pay included as earned income for the earned income credit. You must be in the military to qualify for this option. This may increase or decrease your EITC. This amount is on Form W-2, in box 12, with code Q.
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Include disability benefits. This qualifies as earned income until you reach retirement age and must be reported on line 7 of either Form 1040 or Form 1040A. Beginning on the day after you reach minimum retirement age, payments are not considered earned income.
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Tips & Warnings
EITC will not go against eligibility for Medicaid, Supplemental Security Income, food stamps, low-income housing or most Temporary Assistance for Needy Families aid.
