Earned Income Credit Quali cations
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David Gene Neugart
Types of Credits •
Refundable Credits – Taxpayer receives full amount of credit they are entitled to, whether or not they have tax liability.
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Non-refundable Credits – Taxpayer receives maximum amount of credit allowed or a credit equal to their tax liability whichever is less.
Earned Income Credit
Maximum Credit (for tax year 2005) for
– 2 or more qualifying children $4,400
– 1 qualifying child $2,662
– No children $399
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Refundable Credit for working taxpayers with Earned Income and Adjusted Gross Income (AGI) of less than:
– $35,263 ($37,263 married ling jointly) with 2 or more qualifying children
– $31,030 ($33,030 married ling jointly) with one qualifying child, or,
– $11,750 ($13,750 married ling jointly) with no qualifying children
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Earned Income Credit Quali cations
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Taxpayer must have earned income (income from work)
Investment income (interest, dividend income) must be less than $2,700 or less for the year
Taxpayer, spouse and all qualifying children must have SSN (ITIN holders do not qualify)
Taxpayer, spouse and all qualifying children must be U.S. resident or resident alien for entire year
Filing status cannot be Married Filing Separately
Taxpayer, spouse and qualifying children cannot be the qualifying child of another taxpayer
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Child Tax Credits
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Partially refundable, partially non-refundable.
Maximum credit is $1,000 per qualifying child for tax year 2005.
For all taxpayers with adjusted gross incomes of less than $55,000 (may be higher based on ling status)
Qualifying child must
– be under the age of 17 on Dec. 31, 2005
– be a U.S. Citizen, national, or resident
– have lived with the taxpayer more than half of 2005 (183 days)
– not have provided more than half of their own support
Special rules for divorced or separated parents
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Child and Dependent Care Expense Credit
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Non-refundable credit
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Most commonly used credit in U.S.
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Credit limited to the lesser of the lower paid spouse’s earned income (or taxpayer’s earned income if unmarried), the actual expense paid, or $3,000 for one qualifying child or $6,000 for 2 or more qualifying children
Child and Dependent Care Expense Credit Quali cations •
Person being cared for must be
– the taxpayer’s dependent child who is
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a U.S. citizen, national or resident,
under the age of 13 when care was provided (or any age if physically/mentally incapable of self-care),
• who did not provide more than half their own support during the year, and
• who lived with the taxpayer more than half of 2005
or
– the taxpayer’s dependent or spouse who is not physically or mentally
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capable of self-care
Child and Dependent Care Expense Credit Quali cations •
Credit is for expenses paid for care so taxpayer could work or look for work
Taxpayer must identify the care giver and provide the care giver’s SSN (or EIN, if a business) in order to claim the credit
Special rules for grandparents and siblings who are paid to care for dependents (generally not allowed)
Special rules for divorced or separated parents
Credit phases out at high income levels
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Education Credits
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Two types – both non-refundable
Credit for quali ed education expenses incurred
Hope Scholarship Credit – Maximum credit $1,500 per student for rst 2 years post-secondary education
Lifetime Learning Credit – Maximum credit $2,000 per return, regardless of the number of students on the return
Credit phases out at high income levels
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General Education Credit Quali cations
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Quali ed student – Can be taxpayer, spouse, or any dependent
Quali ed expenses – Generally all that are actually incurred except for books not required by the school, insurance, medical expenses and room and board
Can receive credit for expenses paid with student loans, as long as loan must eventually be repaid
Filing status cannot be married ling separately
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Hope Education Credit Quali cations
Student must be enrolled in rst 2 years of post-secondary program
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Student must be enrolled in a degree-seeking or professional certi cation program
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Student cannot have been convicted of a felony possession or distribution drug charge
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Student must be enrolled at least half-time
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Lifetime Learning Education Credit Quali cations
No requirement that student be enrolled half-time
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Student must be enrolled in a post-secondary degree program or taking courses to improve or acquire job skills
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No requirement that student not have been convicted of a felony possession or distribution drug charge
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Thank You