 Income tax 2022-2023 earned income tax credit the EIC with two qualifying children tax software example. Let's do some wealth preservation with some tax preparation. Here we are in our example form 1040 populated with 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 Mr. Anderson living in Beverly Hills 90210 W2 income 100,000 way over the threshold to be getting the earned income tax credit. But that's our standard starting point. So that's where we'll start. 12,950 is the standard deduction. Get this to the 87,050 page number to calculate in the tax 14774 15,000 withheld to get us to the 226. Now let's boost up the number of children here. We're talking about two children now remembering that when we look at the earned income tax credit, then we look at it by tier here in essence. So if there are two children involved, then we can have two children involved that will have a maximum credit of 6,164. But we want to think about the curve in relation to the income, which will be slightly different if single 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. All versus married. So let's add the two children, which should also boost us up from a single filing status to a head of household filing status usually. Okay, so now we've got head of household status and hold on. Yeah, so we got Mr. Anderson to dependence now to dependence involved and that brings our standard deduction up to the nineteen four hundred. Obviously, we still do not qualify for the deduction because we're going to be way over the threshold for the child tax credit, although I'm sorry for the earned income tax credit, although we do have the child tax credit, of course, with the children involved. Now let's start looking at the income thresholds. We can go up to forty nine three ninety nine at the max. Let's start at the bottom line and then build up from there like five thousand increments, five thousand increments and see what the impact is on the earned income tax credit. Now also remember, I want to point this out upfront and we'll also take a look at some examples at the end that if you had individuals, two individuals that are head of household filing status and they had like two kids or something like that, then and then they got married. Then you would expect there might be a disincentive for getting married due to the way these these refundable taxes are structured. So we'll take a look at that possibly a little bit more after we think about the curve as income goes up. So let's go back on over and let's say let's imagine we had five thousand of income, which would you would think would be quite low and not something that would be able to support two kids typically. But let's start there and we're going to say five thousand of income. Obviously that's below the threshold so we have no taxable income. But on page number two, we may still have the earned income tax credit as we have here at the two thousand ten. So I'm just going to map that out so we can make a graph of it. Credit credit credit. Gosh, two zero one zero. Who taught you how to spell ten thousand. Let's bring it up to ten thousand. Bring it on up ten thousand and now the credit is at four thousand and ten four thousand and ten. Okay, four zero one zero. Let's bring it to fifteen thousand fifteen thousand and we'll go fifteen thousand. Okay, Paso con esto. Okay, six zero. That's my Spanish to six zero one zero six zero one zero twenty thousand. That's close to the cap to the high mark, but not quite there. Twenty thousand twenty thousand. The credit's going up as earned income goes up. There it is at the cap the highest point six one six four. There it is six one six four. Let's go to twenty five thousand twenty five thousand twenty five twenty five twenty five thousand. There we have it and now we're at back down to the five one three three five one three three. Let's bring it up to thirty thousand thirty thousand thirty thousand. Can I get a thirty thousand thirty thousand thirty thousand thirty thousand. And that comes out to the four zero eight zero four zero eight zero thirty five thousand almost. Whoa, that's way up there thirty five thousand. That's not going to qualify for the credit. That's not going to qualify. They're rich thirty five thousand and we're going to get the three zero seven two seven three zero two seven. Forty thousand. It's going to go up to forty nine thousand so we're almost there. Almost there forty thousand forty thousand forty thousand forty thousand. It's going to bring us to the one nine seven four. So we'll say one nine seven four and then if we go up to forty five thousand forty five thousand forty five. That brings us up to the nine twenty one nine two one and finally fifty thousand is over the cap. And it'll go back down to zero fifty thousand. So if I did this all correctly goes back down to zero. And if we plot this curve we can say okay there's just a couple plot points of the curve insert recommended graph. I want something like that boom plot it out. And so as the as the income goes up our our credit goes up because it's an earned income tax credit. But then it has to hit a cap of some point of course and then go back down the maximum amount of the credit being at that six one six four that mirrors what's over here on our tables. This is the form ten forty instructions. The tables can be quite complex looking but same kind of idea that just a lot more detailed than our little plot points we did. So here's our income levels to children. We're not married here. We're looking at the unmarried two kids and you can see as income goes up the credit goes up until you're going to hit that six thousand mark goes up over here continues to go up up up up. We're on this column continues to go up up up up up. And then we're in this column continues to go up up up. And then over here in this column continues to go up until we get to six thousand six thousand one sixty four right there at around fifteen thousand four hundred. And then it sticks there at that level for some time that's the maximum level until you get down to here twenty thousand two hundred. And then it goes back down so you can see that's what we have here. We had twenty thousand hit the max twenty five thousand it goes to five one three three so twenty five thousand. If I look at that is right there. And it goes to two children five one three three five one three three thirty thousand four zero eight zero thirty thousand thirty thousand thirty thousand. Which is here four zero eight zero so you get the idea there. So the other thing you want to keep in mind is if you have combat pay then that would mean that if you're under the threshold and you can opt in to have the combat pay included for income. Not for federal income taxes but for calculating the earned income tax it could be beneficial until you hit until you clear that point at which time it's not going to be beneficial anymore. And so if you have the option you can that's what you would think about for that type of option. Now if we go to married then you would think everything would double but it doesn't see so that so married you're going to have a similar curve. But it's not like the whole curve is doubling because the cap maximum is only at fifty five five twenty nine and the maximum credit is still at that six one six four. You can imagine for example someone getting married and they have two kids and the other one doesn't have any kids there. Then they would still be at the two items here and then they would be at this this column which is a slight which is like a similar curve but you can imagine it slightly shifted to the right in essence right. And then and then but if you had like two individuals that were head of household individuals for example and they both have two kids and then they got married and had four kids. Then you would be moving up from this tier and and here to basically this year but you can't have over you're not going to get any benefit over three kids. So that you would think that you would end up in a situation that would be less beneficial in that situation right because even though you're going up to the next tier you'd be you'd be removing another kid would be basically removed. So let's first let's write let's write down what we have here so I'm going to say right now we've got a head of household. If we had a single person we've got then the credit earn earn income credit and we're going to say that that is that is to do. Let's let's maximize it out let's let's go back to the maximum which I think some somewhere around 20,000 20,000 on the max. And that gets us to that 6164 so let's say earned income. Let's go income income. I can't spell 20,000 and an income credit is the 6164 and then we had and then we had the refund. The refund would be the we're saying here the 878987898789. Okay, so then let's imagine we had two people in that situation. So if I double that times 222 then between the two people if they file separate head of household returns. This times this and this times this they'd have a total of 40,000 income and then the earned income credit double that would be for two people would be this and then if they got married. If they got married. Now you've got income of this times to 40,000 and then what's going to happen with you and you've got four kids now right so we're going to say all right well what happened there now you got these. Two people that got married. Think that would be you know something that you wouldn't want to dis incentivize. So let's say we had another W2 W2 another 20,000 and let's add some dependence. Okay, so hopefully I got everything in there correctly so I got married filing joint now. Mr. and Mrs. Anderson and now we got four kids we just stopped naming them which is called them this one number three and number four kid. Your number three your number four and we'll say okay. So now we double the income to 40,000 it doubles the standard deduction which is great that's what we would kind of expect to happen when you get married. Generally because everything would have to kind of double because now you got two people. And so that just here if I go to page number two the tax is now calculated at the 100413 but now the earned income credit is 4036. So 4000 so the earned let's say earned income credit is 4036 even though I have three even though I'm on the other tier with three with three kids kids or over three kids. Now right I have four we have four kids and the married filing. So you would think you'd have to be under 54 goes away entirely but we're not maximizing out because our combined incomes are now up above the threshold that we're not getting the maximum of 6935 in that category but only that 4036 and then the refund. The refund is we're going to say here 9661 so 9661 so you could see you know a substantial difference between two people ahead of household that were in the same situation with two kids. You know might have might see a substantial hit if they got married and had four kids with and they were relying on the earned income tax credit kind of situation if I did that correctly. I know I'm doing these kind of quickly but the bottom line is you want to do some if you have these refundable credits in particular you want to make sure that you're doing some projection so you so you can see what the tax consequences would be. Again if you didn't have these credits on the other income on the upper income side of things you would think most time you would be benefiting because everything else does double kind of normally meaning you get married and your standard deduction doubles which you would kind of expect so it doesn't disincentivize marriage and you would think that your tax tables actually kind of double or change respectively for two people versus one people one person. But the obviously the earned income tax credit the way it's structured isn't exactly structured in that format as well because it doesn't exactly double from single or head of household to married file and joint. And just want to point out again that on the income threshold side of things we're talking W2 income but you can also have other income that would be like self employment subject to self employment tax usually would think would be something that would count which would be like a schedule C income. Generally the tax exempt income interest and dividends doesn't really count doesn't count towards the credit although it can totally exempt the credit or remove the credit from being able to take if you have a lot of interest and dividend income because that would indicate that you have a lot of money either in the bank and or in investments stocks and bonds for example.