Earned Income Tax Credit

THE TAX ATTIC with Jerry Coon

November 17, 2011 // 0 Comments

Follow-up on EITC, Form 8867 Here is a follow-up on last week’s article concerning the Earned Income Tax Credit (EITC) and the Form 8867, Paid Preparers Earned Income Due Diligence Checklist. The object of the form is to require tax preparers to go over all of the rules concerning the EITC with their clients (i.e. perform good due diligence). This is an attempt to cut down on the number of mistakes and outright fraud that occurs in the EITC program. The Internal Revenue Service (IRS) has found that there are a significant number of mistakes being made by paid tax preparers and by all indications there is a significant amount of fraud accompanying those errors. I noted that the IRS requires that Form 8867 be signed by both the preparer and the taxpayers. In addition, the form will have to be submitted with the return as part of the return package. Previously, preparers were required to keep the form in their file. Now, it has to go in with the return and a copy still has to remain in the file. The penalty for noncompliance was increased. The penalty for not sending the form in, for not having a copy in the file, or simply for not performing good due diligence has been increased from $100 per incident up to $500 per incident. The IRS will be authorized to penalize: 1. the return preparer; 2. the firm that employs the return preparer, or 3. a non-signing preparer who is supervised by a return preparer. The IRS reserves the right to penalize any or all three of the parties involved. They are serious about penalizing those who do not comply with the due diligence rules when preparing EITC returns. All of us want to see taxpayers who legitimately qualify for the EITC receive the right amount of credit. However, none of us want to see taxpayers who do not qualify still receive the credit because a preparer doesn’t know the rules or intentionally bends the rules. Another area where there seems to be a large amount of fraud is in the area of Michigan unemployment. Some of it comes from people drawing unemployment benefits when they aren’t entitled to the benefits and some of it comes […]

Credits, Deductions of the American Recovery & Reinvestment Act

March 5, 2009 // 0 Comments

by JERRY COON The picture is becoming clearer where it concerns some of the credits and deductions that were adjusted when President Obama recently signed the American Recovery & Reinvestment Act of 2009 (AR&R). There are so many provisions in this bill that were changed, thus affecting so many people, that it has guaranteed that tax professionals will spend many hours in the months ahead becoming familiar with those changes. Lower-income taxpayers, especially, will potentially get a tremendous amount of tax relief under this bill. First, those receiving Earned Income Tax Credit (EITC) will get the benefit of an increased EITC. In 2009 and 2010, taxpayers with three or more qualifying children can receive up to a maximum EITC of $5,656. That is an increase of $832 over the 2008 maximum credit of $4,824. It’s important to note that EITC is fully refundable, so the term “tax relief” isn’t technically totally accurate. Tax relief would imply there would be some tax to get some relief from. For reference purposes, under pre-American Recovery & Reinvestment Act law, two taxpayers filing a joint return with earnings of $29,000 and three children would already pay zero tax, would get a full refund of their withholding, and would get $2,669 in refundable EITC. That is how our current tax system works. The new EITC tables have not been released as yet, but it looks like these same taxpayers would get a refund of about $3,203 in 2009. The American Recovery & Reinvestment Act practically guarantees our tax system will continue to work in the same old way far into the future. The second provision affecting these same taxpayers allows more taxpayers to participate in the refundable portion of the Child Tax Credit (CTC). For each dependent under the age of 17, $1,000 of CTC is allowed. However, for 2008, basically only taxpayers with earnings in excess of $12,550 would qualify for a refundable CTC. The new law allows this refundable portion to start with earnings in excess of $3,000. The previously noted joint taxpayers with $29,000 and three children would receive an additional $3,000 of refundable CTC in addition to the $3,203 of refundable EITC for a total minimum refund of $6,203. I think it’s fair to say that […]

EITC Receivers get Extra Credit

January 29, 2009 // 0 Comments

by JERRY COON Incredibly enough, our Michigan legislature is giving a credit on this year’s tax return that it can ill afford. Michigan’s tax revenues are decreasing by the minute and in approximately the same proportion that the unemployment rate is increasing. However, they have still found it in their hearts to give out a very large tax break. Starting this year, all taxpayers receiving a federal Earned Income Tax Credit (EITC) are going to also receive a refundable credit on their Michigan tax return equal to 10% of the federal EITC. I didn’t realize the Treasury had several millions of dollars in a rainy day fund in Lansing just waiting to be refunded as tax returns are filed. In fact, if what they are telling us is true, they don’t have several millions of dollars in any fund anywhere. The reality of the situation is that this refunded money is most likely going to cause some other program to be shorted. I’m doing a little complaining here because I’m afraid our schools might just be the ones that could get shorted, and that is just not right. In any event, the rules are the rules and I will get off my soap box. This particular rule says taxpayers who receive a federal EITC will receive an additional 10% credit on their Michigan tax return. So be it. In that light, what I really need to discuss, then, is how someone qualifies for the federal EITC. There are three sets of requirements. The first set of requirements applies to all taxpayers who wish to claim the EITC. The second set applies to taxpayers who do not have qualifying children. The third set applies to taxpayers with qualifying children. The requirements that apply to all taxpayers are as follows. The first and most important requirement is the taxpayers must have earned income. For those filing single, head of household, or as a qualifying widower with no qualifying dependents, the income range (IR) to receive a credit ranges from $1 up to $12,880. For those with one dependent, the IR is from $1 up to $33.995. For those with two or more dependents, the IR is from $1 up to $39,646. For taxpayers who file using the […]