The Earned Income Tax Credit
Earned Income and AGI Limits The tax year 2018 Earned income and adjusted gross income (AGI) must each be less than:
If Filing…......................Qualifying Children Claimed
Zero One Two Three or more
Single $15,270 $40,320 $45,802 $49,194
Head of Household $15,270 $40,320 $45,802 $49,194
Qualified Widowed $15,270 $40,320 $45,802 $49,194
Married Filing Jointly $20,950 $46,010 $51,492 $54,884
Investment Income Limit Investment income must be $3,500 or less for the year.
Maximum Credit Amounts The maximum amount of credit for Tax Year 2018 is:
- $6,431 with three or more qualifying children
- $5,716 with two qualifying children
- $3,461 with one qualifying child
- $519 with no qualifying children
What is Earned Income?
Earned income includes all the taxable income and wages you get from working or from certain disability payments.
There are two ways to get earned income:
You work for someone who pays you
You own or run a business or 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 (see Special Rules page for more information)
•You are a statutory employee and have income.
(See definition of statutory employee on our Helpful Definitions and Acronyms for EITC page).
Nontaxable Combat Pay election.
You can elect to have your nontaxable combat pay included in earned income for EITC. The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q.
Electing to include nontaxable combat pay in earned income may increase or decrease your EITC. See Publication 3. Armed Forces Tax Guide, for more information.
Examples of Income that are Not Earned Income:
v Pay received for work while an inmate in a penal institution
v Interest and dividends
v Retirement income
v Social security
v Unemployment benefits,
v Child support
The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. If you have children, they must meet the relationship, age and residency requirements. Additionally, you must file a tax return to claim the credit.
If you were employed for at least part of 2018 and at least age 25, but under age 65, you may be eligible for the EITC based on these general requirements:
Please call us for more information about the EITC, or see IRS Publication 596, Earned Income Credit, which contains eligibility criteria and instructions for claiming the tax credit.
Child Tax Credit
The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon your income. Here are 10 important facts from the IRS about this credit and how it may benefit your family.
1. Amount - With the Child Tax Credit, you may be able to reduce your federal income tax by up to $2,000 for each qualifying child under the age of 17.
2. Qualification - A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
3. Age Test - To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2018.
4. Relationship Test - To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
5. Support Test - In order to claim a child for this credit, the child must not have provided more than half of their own support.
6. Dependent Test - You must claim the child as a dependent on your federal tax return.
7. Citizenship Test - To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
8. Residence Test - The child must have lived with you for more than half of 2018. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
9. Limitations - The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
10. Additional Child Tax Credit - If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
This tax information is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any
taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call me if you have questions.