Earned Income Tax Credit
Earned Income Tax Credit (EITC Home Page)
The social security numbers for the applicable taxpayers and children must have been issued by the due date of your tax return (including extensions), even if your child later gets an SSN. Similarly, you may not claim your child as a qualifying child for the CTC/ACTC if your child doesn’t have an SSN before the due date of your return (including extensions), even if your child later gets an SSN (IRS FAQ)
EITC Due Diligence (IRS FAQs)
EITC information (IRS Hot Topics)
5 Facts About the Earned Income Tax Credit (Brief overview)
2015 Earned Income Base Amounts, Credit Percentages, and Phase-out Amounts (Rev. Proc. 2015-61)
No earned income credit is allowed if the taxpayer has disqualified income (investment income) in excess of $3,400 for the taxable year.
The maximum 2018 earned income credit is $6,431 (married filing joint with three children). The earned
income base amounts, credit percentages, and phase-out amounts are:
| Qualifying Kids | Max Credit | Phaseout |
| No Children | $519 | $15,270 $20,950 |
| One Child | $3,461 | $40,320 $46,010 |
| Two Children | $5,716 | $45,802 $51,492 |
| More than Two | $6,431 | $49,194 $54,884 |
Are taxpayers required by law to claim all expenses pertaining to their business?
Yes. A self-employed individual is required to report all income and deduct all expenses. Revenue Ruling 56-407, 1956-2 C.B. 564, deals with the issue of taxpayers not taking all allowable deductions in computing net earnings from self-employment for self-employment tax purposes. Rev. Rul. 56-407 held that under §1402(a), every taxpayer (with the exception of certain farm operators) must claim all allowable deductions in computing net earnings from self-employment for self-employment tax purposes.
Net earnings from self-employment are included in earned income for EITC purposes. It is defined by cross-reference to the definition of net-earnings from self-employment under I.R.C. §1402(a). This ruling applies equally to the EITC. CCA 200022051 also provides insight regarding deduction of Schedule C expenses.
A self-employed individual is required to report all business income and deduct all allowable business expenses (see above for source). They do not have the option of reporting what is most beneficial.
Explain the requirement and talk about the consequences of not filing an accurate return. You may also want to present your client with the new Publication 4717, Help Your Tax Preparer get You the EITC You Earned. This publication explains preparer’s due diligence requirements and the consequences of not filing an accurate return.
If your client insists on not claiming all expenses, due diligence dictates you do not prepare the return.
You may also want to report the potential fraud. See the Frequently Asked Questions section on Fraud for more information.
2018 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
IRS Form 8867