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The tax credit you may not be aware of -- do you qualify?

In late January, the IRS and Treasury Department organized EITC Awareness Day to highlight the availability of the tax credit. According to the IRS, nearly 24 million people took advantage of the Earned Income Tax Credit last year, receiving nearly $50 billion in benefits.

Just because EITC Awareness Day has passed doesn't mean the IRS will cease its efforts to promote the credit. To assist EITC taxpayers, 167 IRS assistance centers will offer Saturday service on February 20. Click here to find a center near you.

Eligibility for the EITC depends on a number of factors, including:
  • You must have a valid Social Security Number (an Individual Taxpayer Identification Number (ITIN) is not sufficient).
  • Your filing status cannot be married, filing separately.
  • 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.
  • You cannot be a qualifying child of another person.
  • You must not have filed a form 2555 or 2555-EZ (related to foreign income).
You may claim no more than $3,100 in investment income for the year 2009 to qualify. Also, you must have earned income from an employer or self-employed income. Your adjusted gross income (AGI), together with the number of qualifying children you claim, will be key in determining your eligibility and the amount of the credit that you may receive. For 2009, your AGI must be less than:
  • $43,279 ($48,279 for married filing jointly) if you have three or more qualifying children,
  • $40,295 ($45,295 for married filing jointly) if you have two qualifying children,
  • $35,463 ($40,463 for married filing jointly) if you have one qualifying child, or
  • $13,440 ($18,440 for married filing jointly) if you do not have a qualifying child.
The maximum credit you can receive is:
  • $5,657 with three or more qualifying children
  • $5,028 with two qualifying children
  • $3,043 with one qualifying child
  • $457 with no qualifying children
These numbers are up slightly from last year, when the average credit was $2,000.

Since the credit can be confusing, many taxpayers fail to claim the EITC. This usually happens because the taxpayers file a return without understanding that they may qualify for the credit or because they don't file a return at all. Taxpayers must file a tax return to claim the EITC.

Those who tend to assume they won't qualify include workers without qualifying children; people whose earned income falls below the threshold required to file a tax return; people with disabilities; and nontraditional families, such as grandparents raising grandchildren. To help taxpayers determine whether they are eligible for the credit, the IRS has developed an online assistant. The assistant walks you through a set of questions to figure out whether you might qualify for the credit.

Free help is available for taxpayers who may need filing assistance. The IRS strongly suggests you use one of their free service centers or a reputable preparer to help you calculate the credit.

Finally, don't assume the EITC is restricted to federal income tax. For 2009, 21 states offer some form of EITC, including New Jersey, New York and Virginia. Those credits are linked to the federal version of the EITC and offer a percentage as a credit on your state income tax return. In many cases, the credit is refundable, meaning you can receive a credit even if you owe no state income tax.

Don't miss out on the opportunity to claim credits, such as the EITC, for which you qualify. It can reduce your tax bill significantly -- you may even get a refund.

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