Lesson 16
Credits - Part 4
Earned Income Tax Credit (EITC)
Section I
VITA/TCE
TRAINING 101
In this presentation we will cover:
You are not expected to memorize any of this– just be familiar with it.
And how to use your PUB 4012
Earned Income Tax Credit (EITC)
**Please note– the system will apply the EITC automatically if they qualify.
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What is the Earned Income Tax Credit (EITC)?
It’s a Refundable Tax Credit created to support working individuals and families with low to moderate incomes.
To qualify, the Taxpayer and/or Spouse MUST HAVE EARNED INCOME (W2 or Schedule C Self-employment)
Note: Income reported on Form W-2 received for work performed while an inmate in a penal institution does not qualify as earned income for EIC purposes.
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What is the Earned Income Tax Credit (EITC)?
The EITC is designed to boost people out of poverty by:
It’s one of the most effective tools the government uses to lift families out of poverty, especially those with children.
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Impact of the EITC.
Each year, the EITC helps millions of families afford basic needs.
Studies show it:
In some cases, it can double a family's income during tax season.
Eligibility Requirements
**Please note– the system will apply the EITC automatically if they qualify.
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PUB 4012 Section I
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PUB 4012 Section I
**Remember Resident for taxes is NOT the same thing as Resident for immigration. Resident has to do with length of time in the U.S.
Investment-Dividends, Interest, Capital Gains, Royalties
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PUB 4012 Section I
Child must have passed the Qualifying Child Test (See PUB 4012 Section B)
(Remember temporary absences like for attending college is still considered living at home).
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PUB 4012 Section I
The Taxpayer DOES NOT have to claim the child as a dependent to get the EITC Credit.
Example of when this might happen:
For EITC credit- there is a Residency Requirement. Dad CANNOT get the EITC credit for this child but Mom may if she meets other qualifications.
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PUB 4012 Section I
Age Test
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PUB 4012 Section I
Taxpayer(s) with NO children can still qualify for EITC if they have EARNED INCOME & their AGI is under…
This table shows the max AGI the Taxpayer(s) can have and still get some EITC credit-depending on the number of Qualifying Children they have.
These limits increase every year with inflation
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Married Filing Separately & EITC
!!Warning!!
!!Requires special entry to get the system to calculate credit!!
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Married Filing Separately & EITC
Note: The Taxpayer DOES NOT have to pay over 50% of cost of home. Remember, if they did pay over 50% of the cost of the home and had a dependent live with them over 6 months of the tax year, they could file Head of Household instead.
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Married Filing Separately- Qualifies?
On the Basic Information page check here
If the Taxpayer meets the “CONSIDERED UNMARRIED” requirements, you MUST indicate that in the software or the system will not calculate a credit even if they qualify.
If all the other criteria is met, the system will calculate the credit, but if you don’t check the box, the system will not even try.
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How the Credit Works
**Please note– the system will apply the EITC automatically if they qualify.
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Image from Colorado Tax-aide
No Earned Income
No EITC Credit
The Credit is a Bell-Shaped Curve – 2026 values shown
Actual Amount received is based on:
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Image from Colorado Tax-aide
The Credit is a Bell-Shaped Curve – 2026 values shown
Actual Amount received is based on:
Work a little
Get a little credit
Actual Amount received is based on:
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Image from Colorado Tax-aide
The Credit is a Bell-Shaped Curve – 2026 values shown
Actual Amount received is based on:
As income increases, so does the credit,
To encourage the Taxpayer to work more.
Actual Amount received is based on:
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Image from Colorado Tax-aide
with no children
The Credit is a Bell-Shaped Curve – 2026 values shown
The maximum they can get based on family size, income, and filing status.
Actual Amount received is based on:
with 1 child
with 2 children
with 3 children
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Image from Colorado Tax-aide
The Credit is a Bell-Shaped Curve – 2026 values shown
Actual Amount received is based on:
At this point, as the income increases the EITC credit goes down because they don’t need it as much.
Credit
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Image from Colorado Tax-aide
The Credit is a Bell-Shaped Curve – 2026 values shown
If income is over the threshold, No EITC Credit
Actual Amount received is based on:
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Maximum Amount of Credit for TY2026
For Married Filing Jointly Couple
No Child
One Child
Two Children
Three Children
$664
$4,427
$7,316
$8,231
Credit increases each year
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Social Security Numbers (SSN)
vs
Individual Taxpayer Identification Number (ITIN)
& EITC
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SSN Requirement
The amount of the credit depends on the number of qualifying children with valid SSNs.
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Examples of the Maximum Amount of Credit Taxpayer can receive
For a couple filing married filing jointly.
Example 1 --All 4 have SSNs
No Child
One Child
Two Children
Three Children
$664
$4,427
$7,316
$8,231
Maximum amount allowed is $7,316 based on 4 qualifying children, if other qualifications are met.
Example 2 – Taxpayer & both kids have SSNs, Wife has an ITIN
No EITC allowed if Taxpayer OR Spouse have ITINs
**Please note– the system will calculate the EITC if they qualify based on income, marital status, and qualifying family members
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Examples of the Maximum Amount of Credit Taxpayer can receive
For a couple filing married filing jointly.
Example 3 – Taxpayer, Wife, & only 1 child has a SSN
No Child
One Child
Two Children
Three Children
$664
$4,427
$7,316
$8,231
Maximum amount allowed $4,427 based on rate with 1 Qualifying child if other qualifications are met.
Example 2 – Taxpayer & Spouse have SSN, both children have ITIN
Maximum amount allowed $664 based on no qualifying children, if other qualifications are met.
**Please note– the system will calculate the EITC if they qualify based on income, marital status, and qualifying family members
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Quick Review
**Please note– the system always gives credits based on filing status, income, and qualified dependents– but there are times when the taxpayer may not be entitled to some of the credits.
And there are also times when parents may agree to split benefits of a qualifying child.
Tax Benefits Associated with a Qualifying Child
A qualifying child may allow a taxpayer to receive one or more of the following benefits:
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Example of Splitting/Sharing Benefits
For a divorced couple living apart.
Theo is single and the father of Jack and Jill. The judge ordered that Theo pay child support and said Theo was allowed to claim both children as dependents on his tax return. Theo lives alone except for when the children stay every other weekend, 2 weeks in the Summer and on Christmas Day.
Theo is the Non-Custodial Parent.
Both Jack and Jill live with their mom, Betty Sue, for more than half the year. Betty pays 100% of the cost of their apartment.
Betty is the Custodial Parent.
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Example of Splitting/Sharing Benefits
For a divorced couple living apart.
Both Jack and Jill live with their mom, Betty Sue, for more than half the year. Betty pays 100% of the cost of their apartment.
Betty is the Custodial Parent.
First: The IRS rules say the custodial parent gets to claim the children.
For Theo to claim Jack & Jill, Betty needs to sign IRS Form 8332 releasing her right to claim them on her taxes.
Even though the judge says Theo can claim the kids, the Judge cannot override IRS rules.
Theo is single and the father of Jack and Jill. The judge ordered that Theo pay child support and said Theo was allowed to claim both children as dependents on his tax return. Theo lives alone except for when the children stay every other weekend, 2 weeks in the Summer and on Christmas Day.
Theo is the Non-Custodial Parent.
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Example of Splitting/Sharing Benefits
For a divorced couple living apart.
Theo Well is the father of Jack and Jill. The judge ordered that Theo pay child support and is allowed to claim both children as dependents on his tax return. Jack gets the children every other weekend, 2 weeks in the Summer and on Christmas Day.
Theo is the Non-Custodial Parent.
Both Jack and Jill live with their mom, Betty Sue Well, for more than half the year. Betty pays 100% of the cost of their apartment.
Betty is the Custodial Parent.
First: The IRS says the custodial parent gets to claim the children.
For Theo to claim Jack & Jill, Betty needs to sign IRS Form 8332 releasing her right to claim them on her taxes.
Even though the judge says Theo can claim the kids, the Judge cannot override IRS rules.
Or, Betty can allow Theo to claim 1 or both children for just the tax year shown
As custodial parent, Betty can revoke/cancel the release at anytime.
Betty can allow Theo to claim 1 or both children for the years show.
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Example of Splitting/Sharing Benefits
For a divorced couple living apart.
For this example– Betty Sue signed a Form 8332 for each child, releasing her rights, allowing Theo to claim both children on her taxes. ☺
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Example of Splitting/Sharing Benefits
For a divorced couple living apart.
For this example– Betty Sue signed a Form 8332 for each child, releasing her rights, allowing Theo to claim both children on her taxes. ☺
Filing Status
🡨 Only as Single
Head-of-Household 🡪
(Based on residency)
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Example of Splitting/Sharing Benefits
For a divorced couple living apart.
For this example– Betty Sue signed a Form 8332 for each child, releasing her rights, allowing Theo to claim both children on her taxes. ☺
Best Filing Status?
🡨 Only as Single
Head-of-Household 🡪
(Based on residency)
Credits?
Dependent Care🡪
EITC
🡨 Child Tax Credit & Additional Child Tax Credit (Or Credit for Other dependent if children have ITIN numbers or are at least 17).
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Example of Splitting/Sharing Benefits
For a divorced couple living apart.
If Betty Sue refused to sign Form 8332 releasing her rights, or she revokes her release, Theo cannot claim the children.
Best Filing Status?
🡨 Only as Single
Head-of-Household 🡪
(Based on residency)
Credits?
🡪
Child Tax and Additional Child tax credit, (or Credit for other dependent if the kids don’t have SSNs or are ages 17+) Dependent Care, EITC
*whatever she qualifies for based on income
No credits for the kids .
Proposed Federal Public Benefit Regulations - Schedule 3-A
This is still a proposed change- not definitive yet.
If this passes- guidance will be provided
Treasury and the IRS have proposed treating the refundable portion of certain tax credits as a Federal Public Benefit.
The proposal may impact:
If these credits become classified as "Federal Public Benefits"
WOO-HOO!!!
You Did it!
Next Up:
Education Credits