Earned tax Credit or EITC also called as EIC is a crucial benefit for working people that have low to moderate income. The EIC may be a refundable credit, enacted as a piece incentive within the Tax Reduction Act of 1975. It provides a financial boost to working individuals and families. it’s become one among the first sorts of public assistance for low income working taxpayers. A decrease means extra money in your pocket. It reduces the quantity of tax you owe and should also offer you a refund. Eligibility for the EIC is predicated on the taxpayer’s earned income, adjusted gross income, investment income, filing status, and work status within the us .the quantity of the EIC is predicated on the presence and number of qualifying children within the worker’s family, also as on adjusted gross income and earned income.
The earned income credit generally equals a specified percentage of earned income up to a maximum dollar amount. Earned income is defined as wages, salaries, tips and other employee compensation, but as long as such amounts are includible in gross income, plus the quantity of the individual’s net self-employment earnings. the utmost amount applied over a particular income range and them diminishes to zero over a specified phase-out range. For taxpayers with earned income (or adjusted gross income(“AGI”), if greater) in more than the start of the phase-out range, he maximum EIC amount is reduced by the phase-out rate multiplied by the quantity of earned income(or AIG, if greater) in more than the start of the phase-out range. For tax return filingwith earned income (or AGI, if greater) in more than the top of the phase-out range, no credit is allowed.
An individual isn’t eligible for the EIC if the mixture amount of disqualified income of the taxpayer for the taxable year excess $3450 (for 2017). This threshold is indexed for inflation. Disqualified income is that the sum of interest (taxable and tax-exempt), dividends, net rent and royalty income (if greater than zero), capital gains net and net passive income (if greater than zero) that’s not self-employment income.
The EIC may be a refundable credit, meaning that if the quantity of the credit exceeds the taxpayer’s Federal tax liability, the surplus is payable to the taxpayer as an immediate outgo .