How to Make Gains on Earned Income Tax Credit

Earned Income Tax Credit (EITC) can be one of the most confusing forms of credit authorized by the IRS, but it is also one of the most useful. It can be especially helpful to those of us whose jobs demand hard work but offer only a low to moderate income in return. An understanding of whether you are eligible for Earned Income Tax Credit works can help you determine whether applying for it might be a good idea.

In order to qualify for Earned Income Tax Credit, you must be able to report an earned income received through a legitimate form of employment, whether you are self-employed or work for someone else. Earned income refers to all taxable income that you gain through your work, including wages, tips and salaries. Benefits from union strikes are also taxable, as are those from long-term disabilities if they are claimed before you reach the minimum retirement age.

If you serve in the armed forces, receive nontaxable combat pay and wish to receive EITC, then you can opt to have your pay classified as part of your earned income. However, you should be aware that choosing to change the categorization of your nontaxable combat pay can have varying consequences. Depending on your situation, converting your pay’s status may actually decrease your Earned Income Credit. In order to determine whether this would be the case, you should use the updated version of IRS Earned Income Tax Credit Assistant, an online tool which allows you to see what effects changes in your earned income would have on your EITC. It is available in both English and Spanish.

Not all forms of income that are paid by both civilians and veterans are recognized as earned by the IRS. These include Social Security, alimony, child support, interest and dividends, and unemployment benefits. Additionally, be aware that Basic Allowances for Housing and Subsistence given to members of the military do not qualify as earned income.

There are other criteria which must be fulfilled in order to apply for EITC. Some rules may vary for individuals in certain situations. These include those who receive disability benefits and those who are affected by disasters, as well as clergymen and members of the military. No matter what, you must have a valid Social Security number. U.S. citizens and all-year resident aliens may apply for Earned Income Tax Credit, as may non-resident aliens if they are married to a U.S. citizen or resident alien. The IRS website provides a full list of requirements necessary for EITC approval.

Earned Income Tax Credit can be a tremendous resource to those who work hard but don’t make an income that matches the demands placed upon them. The intense bureaucratic workings can make it hard to understand the process, but that should not deter from trying to pursue EITC. If you choose to do so, by all means capitalize upon the opportunity that Earned Income Tax Credit offers, but make sure you know what benefits apply in your situation and what the process involves.

Siddarth Nagaraj

Siddarth Nagaraj is a junior at the University of North Carolina-Chapel Hill. He is currently pursuing a double major in Global Studies and Political Science with a minor in Geography. Originally from Winston-Salem, North Carolina, he is interested in socioeconomic inequity and cultural diversity in developing nations. He is also a Section Editor for The Hill, UNC’s only nonpartisan political review, and has written multiple articles on international affairs for the quarterly publication.

Since the summer of 2010, he has volunteered as a Savings Officer for the Community Empowerment Fund (CEF) in Chapel Hill, which seeks to promote financial literacy and help fiscally strained individuals achieve self-sufficiency. Apart from writing, Siddarth enjoys reading, travel, and watching British television programs. Upon graduation, he plans to earn a graduate degree and seek employment in the field of international development.

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