 Income Tax 2021-2022, software example. Earned income tax credit, the EIC, with no children involved. Get ready to get refunds to the max, diving into Income Tax 2021-2022. Lister tax software, you don't need tax software to follow along, but you might want to have access to the forms. You can find on the IRS website, irs.gov, irs.gov, starting point here, single filer Adam Smith, living in Beverly Hills 90210. We've got no dependence that we're starting out with the income at 11649, unusual number, but I'll explain it shortly. We have the 12,550 standard deduction that gets us taxable income of zero. So we don't have any taxable income. We can mirror that over here on the formula. We've got the 11649, the 12,550, and then we have a negative taxable income, which obviously was stopped or capped at zero, not going below or floor to add zero here. The tax calculated at zero because there was no taxable income, but we still have the Earned Income Tax Credit. And that kind of emphasizes the fact that the Earned Income Tax Credit is a refundable credit, meaning in this case, it's not acting as a refund even though we have basically a refund down here because it's not really a refund of money that we overpaid. It's acting as basically a benefit program in this instance. We can mirror that on our tax equation down below by putting another line for this item down here, our major two refundable credits. One was the CTC Child Tax Credit. The other one's going to be the Earned Income Credit. Let's make another tab. I'm just going to call it the Earned Income Credit. I'm not going to try to recalculate it because it's too complex. So I'm just, for now, I'm just going to right click and format this. I'm going to make it Currency, Brackets, Put None, and then OK. And then I'm just going to basically rely on the software to do the calculation. So I'm just going to call it Earned Income Credit. And then I'm just going to say Software, Help Me Out with the Calculation. And that's going to be the 1502. And I'm going to pull that on over to the first page of the Form 1040 in this line, which is now picking up the Child Tax Credit, the Payments, and then I'm going to add to it this Earned Income Tax Credit at the 1502. At this point, there's our 1502. So we're going to be focusing, of course, on the software here then. Now, if I go back to page one, the reason I use this unusual income to start with is because we're focusing on the Earned Income Tax Credit when we have zero qualifying children. And the questions people will ask, and I'll do a different presentation based on zero qualifying children, one, two, and then three, and above, is going to be, well, when do I lose the credit? That's often what you get when you look it up in the IRS website. How much income can I have before the credit goes away? But you also want to know how high can my income be to maximize the credit, right? So in other words, if you look at a worksheet that you usually find on the IRS website, they're going to say, okay, if you have zero qualifying children and you're not married, basically, your income can go as high as $21,430 before you lose the credit entirely. But you also want to know when does my credit get maximized at, maximizing it if you had no children would be a maximum credit of 1502. Three or more children, the maximum would be $6,728. So we're trying to max, the max with no children is up here, $1,502. So how high can my income be to max it at 1502? And the way we can look at that, we can look at the tables over here. These are the calculation tables for the Earned Income Tax Credit. And you could say, okay, how can I max this thing out if I was going to make the perfect amount of income? I could go down here and say, okay, here's from the $9,800. I max it out here with zero. So I can earn anywhere from $9,800 down to or up to about the $11,650 and still be maxing out the credit with no children at the $1,502. So that's like the first thing that people might have in mind there. So this is kind of the maximum I can have to get the full credit. If I go $1 over that, you can see it starts to go back down. So it's a curve. You can think about it as a curve with relation to your Earned Income Level. So it's at the $1,502. If I made my income go up, wages go up to the $50 here. $1 more, $1 more, and the credit starts to go back down again. So that's typically what people want to know, right? They want to know when do you lose the credit entirely and what's that curve look like and where does it kind of peak off and then go back down. So in other words, if I continue to go up now from this point, I could follow this chart over here and say, okay, if I continued to increase it, you can see that the amount of the credit will go down after I've hit that peak, right? After I've hit that peak, it'll start going back down. So if I made $12,000, I'm going to go back on over and say now it's going down. If I made $13,000 on the wages, it starts to go down. If I made $14,000, it's going down. If I made $15,000, and we could do this all the way until we get to $21,430. So now it's going down. So even though $21,430 is the highest amount, let's go to $17,000, the amount of the credit is going way down with the income level, right? So if I go to $20,000, you can say, yeah, I still get the credit, but it's not doing too much there, right? And if I go above $21,430, $21,440, then the credit is gone entirely. So I can go the other way, right? If I go from zero up and say, let's say I only had like $1,000 of income, then the credit is low again, and the credit will increase until we get to the starting point of the 998, which is where it will cap out. So if I was to increase this up and say, okay, what if it was $3,000? We're going to say then it goes up. What if it's $4,000? Then it's going to go up. What if it's $7,000? We've got an increase to the credit amount. What if it's $8,000? We've got an increase in the credit of the $12,228, and it maxes out around that $9,000. The $9,000 was it? No, around $10,000. Around $10,000, it maxes out at the $10,000, and then again, it stays flat until you get to the $11,649. So $11,649, where we started at $11,649, and it still stays flat at that peak, and then it goes back down. So that's the general idea of the curve. Now, the other kind of funny thing is you might be able to use 2019 income. So let's say my income for 2020 was something low like $5,000 here. So that would be a low credit. But then I'm going to say, but my 2019 income, if they let me use that, which they do, you got to go back two years, I'm going to say, I'm going to elect to use 2019. If I look at the earned income then, and it says not including taxable, earned income, not including non-combat pay, I'm going to say it's $10,000, then if I go back on over, now it's making the calculation based on 2019 earnings, even though my 2021 earnings are lower. So that's a situation where for that particular calculation, I would be better off with my income level being higher. Now, again, it goes over the curve. So obviously, if my income was too high in 2019, it's going to go back down. I'm going to start to go back down. You would only want to do that if basically your income was low in 2021, making a lower earned income credit, and then you wanted to increase it by using 2019. If it happened to be higher and still allow you for the credit. So you've got to choose the better of the two numbers. You could test them both out. The other unusual thing you might have is combat pay for people in the military. So for example, if I go back on over and say that we have a W-2 of $5,000, and then we had another W-2, which was showing combat pay that was not included on the W-2 here, but in line Q. So it usually would be in box 12 of the W-2 for a military member, and it would have, I believe, a Q. And that would then be indicate another $6,000. Now, that's a benefit to the military member because it's not included in income here. We only have the $5,000. That's why it's a benefit. But it could be beneficial to include it for the calculation of the earned income tax credit, which is only being calculated on the $5,000. So I could, in that instance, add the combat pay to the calculation. So I'm going to say add the combat pay. And then now it's up to that $1,502. And you can see that we added the combat pay here. And then on page one, we still only have the $5,000, not including the combat pay here. So you kind of get the best of both worlds in that instance. Now, if I go back, if I delete that, I'm going to go back on over and remove the combat pay. And then if I go to, that takes us back to here. Now, if I jump to the 2019, if I had combat pay in 2019, I would have to enter that on the two lines. So if it was like 2019, I had $5,000. And then combat pay of another $6,000. Then, and I want to elect to use 2019 numbers, then I can go back on over. And now it's showing me those are the numbers that are being used to basically calculate the credit for the 2019 numbers. So the combat pay need to take that into consideration as well. Now, the other thing that can kind of mess things up is if there's a lot of interest income, which isn't usually the case if you're talking about a low income individual, but if you're like investment income here was over 10,000, that could be a problem for the earned income tax credit. So if I went into income and I had interest, for example, of let's say $12,000, that would indicate that I have a lot of money like in the bank or in some types of investments that are generating revenue and could be a problem then for the calculation of the earned income tax credit. That's another kind of restriction that would be common. So now let's go to a situation where they get married. So now we're just looking at the next table over here. Same question is, you know, where am I going to max out the credit if we were married? And also just realized that it's a little bit funny with this credit because it could, you could think that it might be disincentivizing marriage in some cases because you could lose the credit in some cases. So obviously, for example, if we were talking about Adam here that was unmarried and then single filing, getting a credit that was maximized out, I maximized it out again at the 1,502, and then they got married and they had the combined income that was over the threshold for married filing joint, which isn't twice, you know, the single threshold, see if it was 21,430, they'd only have to get up to 27,380 as married basically to lose the credit. So if they got married, and let's say the other person that the spouse earns 15,751, and then I go back on over to the forms, then we're going to say, okay, so now on page two that we don't have any credit that's going to be there because they're above the threshold for the married, which is 27,380. And you can imagine even if they were in the exact kind of same situation, basically if they were got married and they both earned that what we had before the 11,649, which means they would have maxed out the credit on both of them and we go back on over, then they only get a credit of the 628 when married when they were both single and they were exactly identical situations, they both got the credit of 1502, you would think times two, so it would be $3,000 credit that goes down. So you could see that this credit is designed to help out or be beneficial when their income goes up and not lose the incentive as their income goes up to work, but with the marriage involved it gets kind of complex because you can actually disincentivize marriage in some cases you would think, which would be, you know, that doesn't seem like a desirable outcome. But in any case, we got the same questions, how do we maximize, how can we maximize when married? So usually they'll tell you when you lose the credit entirely, but if I go to the married column on the table over here and we've got no children involved, then we could still have the income where it was at the, where was it before, all the way up here at the 9,850. So I can go back on over and say, okay, if it was at, if it was as low as, let's say 9,800, I'm going to go back on over and just put it in one. So let's say it was 9,800 and go back on over and say there's the 1502, so we've maximized it out. And then of course we have a bigger breadth that we can then go through because a longer time frame, so I can go as high to keep it at that max all the way down here to the 17,6 to keep it at that 15,02. So if I, if I income goes up, doesn't matter which one earns it, I don't believe 17,06. Is that what I said? It's a 17,6, 17,599, 17,599. So there's the cap. There's your cap on your income cap for the married filing joint to max out. If there was no children involved, we'll put children in there later. And so there it is. And then you have the same thing. If you go up above that, and then we lose it altogether at the 27,380. So you can imagine, okay, now I've hit the key, the top of the curve. So what if I made 19,000 between the two of us, then it goes down. What if we made 20,000? We made 20,000. Well, then it's going to go down. What if we made then 20, let's say 23,000 between the two of us? Then it's going to be going down. What if we made 24,000? Well, then it's going to go down. What if I made 26,000 between the two of us? Well, then it goes down. And what if we made then over 27,380 or 24,274, then it goes away. And then, of course, we can go the other way as well. So we said the cap happened at, you know, the bottom line of the maxing up of this cap is down here at the 9,800. So 9,800, 9,800 brings us back to the maximized area, 1,005. And if we make less than that, what if we made 7,000 between the two of us, then it goes down. What if we made 6,000 between the two of us, then it goes down. What if we made 5,000 between the two of us, then it goes down. What if we made 4,000 between the two of us, then it goes down. What if we made 3,000 between the two of us, it goes down. What if it's at 2000? 2000? Does it ever go to zero? What if I made 1,000? It's pretty low. It still gives me something, but if I don't have any here, then of course we shouldn't have any earned income tax credit. So you can see it's a curve that kind of peaks out and you get like a longer peak period when married, but you can see again it doesn't double the salaries like you would think if you had two people in the exact same circumstance with income levels with no children and they got married, you would think that this number would kind of double to not distance and that's not kind of what happens. I kind of get it, you know, because they're trying to, but you know that so that's how it is. So we'll do the same thing with one, two, and three in future presentations.