THE TAX ATTIC with Jerry Coon

Rules must be met to claim EITC 

16,000,000—that’s a large figure. It’s the initial estimate of the number of taxpayers who could have their tax return processing delayed this season. When Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 on December 17, it may have caused a few of the software people to go apoplectic. My technician friends tell me that adjusting tax return processing software on the fly is not conducive to low blood pressure. The direct result of these late changes has caused this tax season to get off to a slow start. Fortunately, the estimate of affected tax returns has now been revised downward to 9,000,000.

Jerry Coon

However, the actual number of returns that we have been able to submit to the IRS has been very small. It seems that most returns that Action Tax Service prepares either itemize to claim mortgage interest and property taxes or have the tuition deduction for children in college or are able to claim the educator deduction for classroom supplies. These returns are all in the hold pattern and can’t be submitted until February 14. About the only returns that can be finished and submitted for a refund before February 14 are of the W-2 only variety. Since the IRS isn’t processing those extra 9,000,000 returns this year until February 14, as expected, they have had no trouble in processing the ones that are submitted in a very timely matter.

Let’s discuss some of the returns that can be submitted quickly and do qualify, in many instances, for a large refund. That would include returns with the Earned Income Tax Credit (EITC) on them. Since our Michigan economy has gone downhill and seems to want to remain in the tank, there are now more people who qualify for the EITC. Taxpayers filing a joint tax return with three children can have income up to $48,362 and receive some EITC. Single taxpayers with three children can have income up to $43,352 and receive some EITC. There are many taxpayers today who earned well over that figure three or four years ago, but now make well under these maximum figures and therefore qualify for the EITC. This is a large credit that is totally refundable with the maximum being $5,666.

There are two sets of qualifying rules that taxpayers must meet in order to claim the EITC. The first set of main rules applies to all claimants. Violate any one of the first set and there will be no EITC. Do not pass go and do not collect up to $5,666 of EITC.

The second set has two alternative sets of rules. Taxpayers with a qualifying child must meet one set of secondary rules and taxpayers without a qualifying child must meet a different set of secondary rules.

The first set of seven main rules pertains to all taxpayers with or without a qualifying child.

1. Taxpayers must have a valid Social Security Number.

2. Filing status cannot be Married Filing Separately.

3. Taxpayers must be a U.S. citizen or a resident alien all year.

4. Taxpayers cannot file Form 2555 claiming the foreign income exclusion.

5. Investment income must be $3,100 or less.

6. Taxpayers must have earned income.

7. Taxpayers’ Adjusted Gross Income (AGI) or earned income must be less than $13,460 for singles and $18,460 for joint filers with no qualifying children. Taxpayers with one qualifying child must have AGI or earned income of less than $35,535 for singles and $40,545 for joint filers. Taxpayers with two qualifying children must have AGI or earned income of less than $40,363 for singles and $45,373 for joint filers. Taxpayers with three or more qualifying children must have AGI or earned income of less than $43,352 for singles and $48,362 for joint filers.

There are three extra rules in the set of secondary rules for taxpayers with a qualifying child:

1. The taxpayer cannot be a qualifying child of

another taxpayer.

2. The qualifying child cannot be used by more than one taxpayer to claim the EITC.

3. The child must meet specific relationship, age and residency tests in order to be considered a qualifying child.

There are four additional secondary rules that must be met for taxpayers without a qualifying child:

1. The taxpayer must have lived in the U.S. for more than one half of the year.

2. The taxpayer cannot be a qualifying child of an-

other taxpayer.

3. The taxpayer cannot be a dependent of another taxpayer.

4. The taxpayer must be at least age 25 but under age 65.

If all of these rules are met, the EITC will be awarded. Next week I will explore the rules that define who can qualify as a qualifying child. It can get trickier than it sounds. This is Jerry Coon signing off. 

Jerry Coon is an Enrolled Agent. He owns Action Tax Service in Rockford. Contact Jerry at

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