 Income tax 2022-2023 earned income tax credit, the EIC, with one qualifying child tax software example. Let's do some wealth preservation with some tax preparation. Here we are in our example Form 1040 populated using LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov. Starting point, we've got the single filer Mr. Anderson living in Beverly Hills 90210. We've got the 100,000 W2 income way over the threshold to be getting the earned income tax credit, but that's our starting point here and then we will lower that number. 12,950 standard deduction getting us to the 87,050 taxable income page number two. Calculated the tax, 14774, 15,000 withheld and that gets us to the 226 of the bottom line. Back to page one, now we're going to be saying that there's one child, so when we add the child to it, it's going to generally move our filing status from single to head of household. Let's do that first. All right, so now filings support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website broken out by category, further broken out by course, each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Dennis has moved to head of household. We've got the one child here and we're going to say now the standard deduction has increased to the 1900 instead of the 12,950 for the single filer because we went to head of household and then on the second page, we note that we have the child tax credit, but we don't have of course the earned income tax credit. Now if we have the one filer, then we want to think about this category, the max credit could be the 3733 and then there's a difference in like the way the curve would look for a single filer or non married and a married filer. So this would be the maximum and this is the two, this is the items or the AGI limit when it phases out to zero, but we also want to think about the curve as it goes up. Now the other thing to point out with this is the lower income side with these refundable credits also could result in situations more likely were being getting married could be a disincentive sometimes because then you could, you could end up losing, you know, a fairly substantial credit, which is often the case when a child's involved. So it's kind of an interesting situation because you can question, well, does that, what does that incentivize as well in terms of the tax code? Is that having an impact because usually getting married is a benefit from a tax perspective. If you're well off or middle, you know, if you're, but on the low end with these refundable tax credits, there could be incentives not to get married, which is kind of, you know, seems like not exactly what you would want. But that's kind of some of the problems when you have the the other issue, of course, is that this credit in particular is trying not to fall into the trap of is locking people into not being able to get work because they lose the credit. That's why you have that earned income component, but there always seems to be some of these negative kind of consequences with some of these laws. But in any case, we'll take a look at that as well. Let's bring the income down. And we're going to say, let's bring it down to let's just say like 4000 to start off with 4000 of income. I'm going to remove the federal tax just so I don't get confused and we'll basically plot out the curve and then we'll get into the married situation and possibly look at, you know, what would happen to two single people that then got married situation. All right. So we've got first the 4000 obviously that's below the threshold now the 19 for therefore no taxable income but still could have a benefit to file because of the earned income tax credit and the child tax credit. We're focused here on the earned income tax credit. So at 4000, let's just plot this out again so we can get an idea of 4000. The credit is at 13651365. And let's bring it on up to 8000 8000 and just see what that does on the credit credit goes up to 2729. So let's put that there 2729 for 8000. And let's jump up to 15000 just so we don't spend too much time on this. So 15000. So now we're at the 3733. That's the peak. So 3733 at 15000. That's the highest point of the credit. So now it's going to go back down again. So let's go to 20,000. And we'll say OK 20,33733. So it's staying at the peak 20,33733. Let's go to 25,000. 25,000. That brings us up to 2951. So we got 2951 at 25,000. Hold on a second. So 2951. 25,000. 2951. OK 30,000. 30,000. Almost there to the maximum or until we phase out entirely. 2152. 2152. 2152. I did it again. Dang it. 2152. 30,000. All right. Go to 35,000. Got here. That's not what I wanted to do. 35,000. And then 1,353. OK. 1,353 for 35,000. 40,000. 40,000. Almost to the upper threshold to get anything. Obviously it's going down 554. So that's the 554. The 40,000. And then if we go anything above 43, so 44,000. Let's say 43,492. It goes to zero. So let's say 44,000. It goes to zero. Now note that if you had combat pay, for example, that's pay that wouldn't be included in income, but you might be able to include it in wages. And you can see why that might be a benefit. I mean, you can include it possibly in income earned income for the calculation of the earned income tax credit, which you could see why would be beneficial possibly because it could result in increased credit as the income basically goes up. Let's go ahead and plot this on a graph just so we can kind of get a visual of this. We'll say plot it on a graph. Boom. Something like that. And so now we can see you can kind of visualize what's happening. Your income is going up income on the X axis, the credit going up, it caps out at that 3733, which it stops out for a while and then it goes back down until your income goes back down to and you don't get any more credit. If we mirror that in, this is the instructions for the form 1040. We're looking at this column now. We're saying, okay, single filer. This is the income level one qualifying child. This is the amount of the credit as income goes up. So it's going up, up, up, up, and then it's going to cap out at some point. It's going over here. It's up, up, up, up, up, up, and then it's going up, up, up, up, up, up, up, up, and over here, up, up, up, until it maxes out at the 3733. That's at the 10950 and then it stays at that flat level at the maximum for quite some time. So it's flattened out there until we get down to still going, still going until we get down to the 20,200 about, and then it goes back down. So that's going to be the curve that you can imagine in your mind. If we mirror what we did here, the 15,000 falls in there and then it starts going back down 25,000. It should be at the 2951 at, what was that 25,000, 25,000, which is down here. 25,000 2951. Right. And then it goes to the 30,000 2152 30,000 30,000 is 2152 and so on. So you get, you get kind of the idea there. So, so note if it if you were married, then you would think everything would kind of double when you're married, but it's not right. The cap only goes from 43 phases completely out from 43 492 to 49266 49622. So you can imagine, like for example, if we were maxed out, if we had two people maxed out at, what did we say, like 20,000 20,000. Let's say that gets us to 3,733 3,733. If I said that was our starting point, 20,000 income at 3733. And then you got married. Let's say we got married first and we keep it, keep everything else the same. No other income involved. So now we're going to go married filing joint. And if I go back on over, so now married filing joint, now we still we just have the one individual here, and we kept the income the same. So obviously the standard deduction has doubled. So that's good from a married perspective. That does kind of what you, what you kind of expected to do. And you've got the, the child tax credit that plays in here. But, but now we're at still with the earned income credit is still at the 3,733. Right. So from the earned income level, we still had 20,000 income with a married couple and it didn't really change that. Now that's a little bit deceiving because there's some interplay between the child tax credit and that stuff as well. But you can imagine situations where people become kind of worse off from a earned income credit standpoint when they get married. So for example, if you had another, the other spouse, let's say earned revenue as well. So let's say we had WW2 income at another 20,000. Now you're going to be pretty close to the threshold being over the threshold. So now we've got a one qualifying child. And if I go to here, so now we're at the 1,534. Because although, although the tables are not exact here, you get more of a benefit if married. They're not like doubled, you know, so you can imagine a situation where you get married and you lose a substantial part of the earned income tax credit. Whereas if they were separate, in this case the second spouse, one spouse would have gotten the earned income credit and the other spouse would have been over the threshold at 20,000 to earn the income tax credit with no children. You could have a situation where you have two people that both had a child, let's say they were kind of even here. They had 20,000 each and they both had one child, so the earned income tax credit is 3,733. If they got married, they would be jumping then from two people at this level to a married couple, two people here and here to now one couple that has two children and would now be on this side. So let's just for the fun of it, we'll get into that more next time with that two people. But let's just add another dependent just for the fun of it. So now we're in a situation, if I go to page one, we had married couple, Mr. and Mrs. Henderson, two dependents now. So they were single before, now they got married. The income is double to 40,000. So they were two individuals completely the same from a tax standpoint of 20,000 each and one dependent. The standard deduction goes up substantially, which is what you'd kind of expect because it doubled because now you might have double the income. So now you've got the income. But if I look at the just the earned income tax credit, it's now at the 3,265. Right. If I look at that in before. So before I would have had if I multiply this times two and I did this individually, you'd have 40,000 of income and you would have two people filing head of household and getting 3,733 both. Right. So they would have Mac. They would have got an earned income tax credit of 7,466. And when they get married, the earned income tax credit is 3,265. Now that's not like a perfect comparison because we can also basically look at the the the other things involved here. The child tax credit that's going to be involved. We could just take a look at the bottom line and of course the standard deduction that got doubled. So if this is that 5852 say 5852 and go back to the single situation and let's say we get rid of Jill and that sounded bad. We got rid of her. We're going to get rid of her. She's we're going we're reversing back to where we were before. So and then we reverse back not to single but head of household head of household boom. So now we're at head of household one and let's bring the income back down to 20,000 20,000 income. All right. I think I got everything right now. So so then we're at the 5233. So 5233. So there's still, you know, a difference, a difference involved and the difference could be substantial because you would have two people filing head of household versus the one married filing joint return. So you end up with a substantial difference. I did that quite quickly. But the general idea is that you'd basically want to do some tax projections when getting married. If you're in that kind of situation, not so that it'll be a determining factor to get married or not. But just to basically understand what the taxes will be. So it's not like a like a shock. You probably want to do some projections there, you know, on the lower income side of things with these credits that are going to be involved. These refundable credits in particular, they could possibly result in getting married, having a tax detriment as opposed to a tax benefit, which is often the case when you're not dealing with these refundable credit situations oftentimes. Now, I also just want to point out all the time that this you got to watch out for the scammers there because the scammers in order to maximize everything will often try to use the schedule C, right? So if you had no income, if your income was zero, then it's like, well, you shouldn't you don't even need to file because you have you have no income, right? And so, but if you had some income, then you might be able to get the the earned income tax credit. So you could say, well, what if we did the the schedule C income, right? And just also just to point out the schedule C income is valid. But you also have to be careful of people like scamming the schedule C income because trying to just generate some income that would then increase the earned income tax credit because that's something that you would think the IRS would be and is, you know, skeptical on and looking at so you might get an audit if you do that kind of thing. But the schedule C is, you know, earned income subject to self employment tax and then could impact of course the earned income tax credit whereas the passive income is not typically earned income thanks from interest and dividends. So that wouldn't be included. And if you have a lot of passive income, then the whole you might lose the earned income tax credit because the idea would be that you got a lot of money in the bank or investments in order to generate that income and therefore don't need the earned income tax credit.