 Income Tax 2022-2023, Earned Income Tax Credit, the EIC Questionnaire and Tables. Let's do some wealth preservation with some tax preparation. First, a quick recap of the Earned Income Tax Credit before we jump into the Questionnaire and the Tables. Remember, the Earned Income Tax Credit is aimed at lower income individuals. Economists tend to like it because it's an attempt to incentivize work unlike other benefit programs which often basically lock people into not working and becoming more self-sufficient because when they do, they lose the benefits and they're often better off with the benefits than with working. With the Earned Income Tax Credit, on the other hand, the attempt is to give more of a credit as we have more earned income, as basically we have more work up to a certain threshold and then the income goes back down. The bad side about that is it's more complicated to do that kind of credit. So we also throw into the mix here to complicate things a little bit more. The number of qualifying children for the Earned Income Tax Credit going from zero to three or more no added benefit after three or more children. So oftentimes we want to think about the question of, at each of these levels, zero children, one child, two children, three children or more children, how much income would be the maximum amount of income to get the maximum credit and then how does the credit basically drop back off after that point in time? We can in essence think of a curve in terms of the maximum credit in relation to income for each of these four categories. And so we'll look at that and get a concept of that when we look at the tables and we'll look at the 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. Questionnaire as well. So you can find this at the form 1040 tax year 2022 instructions. You can find the IRS website irs.gov irs.gov. Okay, so we've got step one all filers. If in 2022, three or more children who have social security SSN live with you is the amount on form 1040 or 1040 SR line 11 less than 53,057 or 59,187 if married filing jointly. So those are the income thresholds. Notice that's them. That's the high amount of the threshold. If you have three or more children, it doesn't mean you'll get the maximum credit. That's when you basically don't qualify for the credit anymore after these after these amounts. All right. So if you have if you're in the in the category of two children who have valid social security numbers live with you is the amount on form 1040 1040 SR line 11, which is your AGI in essence less than your adjusted gross income less than 49,399 55,529 if married filing jointly. So and then we got the next tier. If you have only one child who has a valid social security numbers and so on, then the credit completely is gone after you hit the level of 43,492 or 49,622 of married filing jointly. And finally, if you have no children, then it's substantially lower your line 11 AGI less than 16,480 or 22,610. Number two, do you and your spouse if filing joint have a social security number issued on or before the due date of your 2022 return, including extensions that allows you to work and is valid for the EIC earn income credit purposes explained later under definitions and special rules. So if yes, we can continue if no, you can't take the credit. So are you filing form 2555 related to foreign earned income? So if you have foreign earned income, that often kind of complicates things a bit. So if yes, you can't if yes, you can't take the credit. If no, we're going to continue number four, were you or your spouse a non resident alien for any part of 2022. If yes, see non resident aliens later under definitions and special rules. If no, then we're going to go to step number two, we will assume no and go to step number two. So add the amounts from form 1040 or 1040 SR line to a to be three B and line seven. So if we look at a form 1040, we're looking at the investment type of stuff, tax exempt interest, taxable interest, ordinary dividends, capital gains, for example. Okay, so if we add those up, that's your investment income. So they're trying to say, Hey, look, if you've got a bunch of investment income, then even if your income is low, you would think that you wouldn't need money from an earned income credit because you're doing pretty well. Because you would need substantial investments in order to make is your investment income more than $10,300. So so if if yes, continue if no skip question three, go to four. So we would think most people would say no, their investment income is not greater than 10,300. That doesn't include your W2 income. This is the investment income we were looking at. And again, if you had, you would have a substantial amount of investments in assets in order to get dividends and interest, for example, of the 10,000. Okay, so number, let's just take a look at number three here. Are you filing form 4797 related to sale of business property? If yes, you can see form 4797 filers later. If no, you can't take the credit. So they have that exception, even if if you have the 4797. So generally we would say no, and we would go down to number four. So do any of the following applied for 2022, you are filing a schedule E. That's going to be rental income. So again, if you had rental property, you would think that you'd be a more well off individual. Sometimes, oftentimes you would think generally. Are you reporting income from the rental or personal property not used in a trade or business? You are filing form 8814 related to election to report child's interest and dividends on your return. Have you income or loss from a passive activity? Passive income, sometimes the rental income is like passive kind of income. So that would be income that you're generating that you're not, you know, actively working in as the general idea. So if yes, use worksheet one in publication 596 to see if you can take the credit. Now that would be a more unusual situation because you would think that if you had like rental income or something like that, usually that's for more well off individuals and therefore you would think that they wouldn't be claiming the earned income tax credit. So we're going to basically assume no here and go to step number three. Now we're getting into the qualifying children. So the qualifying children note there's different rules for children. You can think is the child someone that's going to qualify for a dependent is a different set of rules to basically do they qualify for the child tax credit versus do they qualify for the earned income tax credit. But usually you would think that if they if they're a qualifying child, they would be a dependent, right? So they're all kind of interrelated to some degree but could have some differences. So you got to make sure you're looking at the right set of rules for the right thing. You're looking at tax software is useful, helpful. So a qualifying child for the EIC earned income credit is a child who is your son, daughter, step child, foster child, brother, sister, step brother, step sister, half brother, half sister, or decedent of any of them. For example, your grandchild, niece or nephew and was under age 19. There's that 19 again, which was we saw with a qualifying child for a dependent under age 19 at the end of 2022 and younger than you. So usually that would be the case. But you can imagine weird situations where that that might not be the case. So you got that 19 under age 24 at the end of 2022 a student, a student, well, a former students defined later. So similar rules we saw to the same rules. In essence, we saw for a dependent and younger than you. So typically they would be younger you or any age and permanently and totally disabled defined later and who isn't filing a joint return for 2022. If they're filing a joint return, you would think they would be married. So that wouldn't be qualifying or is filing a joint return for 2022. This is the exception only to claim a refund or withheld income tax or estimated tax paid. You could see publication 596 for more details there and who lived with you in the United States for more than half of 2022. Now caution, you can't take the credit for a child who didn't live with you for more than half the year. Even if you paid most of the child's living expenses, the IRS may ask you for documents to show you lived with each qualifying child. Documents you might want to keep for this purpose include school and childcare records. So in other words, if you try to claim the credit, the IRS might come back with an audit or something you have to prove. And then the question is, well, how are you going to prove that they lived with you? Well, some of the documentation that comes from some of these areas you think like a school or something like that would be going to that address you would take. Tip, if the child didn't live with you for more than half of 2022 because of a temporary absence, birth, death, or kidnapping, see exemption. So you might say, well, what if that living with you test doesn't qualify because they had a medical situation, they were outside the home or something. You could look at exceptions related to those kind of things. If the child meets the condition to be a qualifying child of any other person other than your spouse of filing a joint return for 2022, see qualifying child for more than one person. Similar kind of issues we saw with the dependent situation. If you can't have two people usually generally, you know, with the same social security number giving tax benefits to do two different tax returns. So you got to, you know, purse that out. All right. One, do you have at least one child who meets the conditions to be your qualifying child for purposes of claiming the EIC? So remember, you could you could claim the EIC with zero children, but it's much less of an amount you will possibly get and then zero one to three and then no more after three. All right. So if yes, you're going to continue. If no, you skip to questions two through six. So if you don't have any, you go to two through six and you still might get the credit, but it's going to be a lot less. So two, are you filing a joint return for 2022? If yes, skip to question three through six and step four. I go to step five. If no, we're going to continue. Three, are you a married taxpayer whose filing status is married filing separately or head of household? Now note that if you are married, you can file married filing separately or married filing joint. The IRS is skeptical of people filing married filing separately when it comes to certain deductions and credits because they're skeptical that they would do that on purpose in order to kind of manipulate the income thresholds possibly to take the credit. So here we have yes, continue. If no, skip question four and five and go to question six. So we'll just continue here and take a look at what they say. Number four, did you and your spouse have the same principal residence for the last six months of 2022? If yes, continue. If no, you can skip to question five. Go to question six. Let's go to five here. Are you legally separated according to your state law under a written separation agreement or decree of separate maintenance and you lived apart from your spouse at the end of 2022? So they're trying to determine here in essence, whether or not you have a married filing separate in essence, in which case you may not be able to take the credit, you would think? Or are you basically legally kind of separated in which case you might be able to get a head of household filing status? In which case you would think you may be able to take the credit and that sometimes comes down to the state law in terms of the separation agreement. So once again, are you legally separated according to your state law under a written separation agreement or a decree of separate maintenance and you lived apart from your spouse at the end of 2022? If yes, continue. If no, you can't take the credit. So we'll say yes. Number six, could you be a qualifying child of another person for 2022? You would think normally if you could be a qualifying child of another person, you wouldn't be able to get a credit, which is basically related to a dependent. So that would be the general idea. So if yes, you can't take the credit, there could be an exception here, but I won't go into that in detail. If no, you can skip to step four, go to step five. Now we're going to just take a look at step four and continue on here. Step four was where we could have skipped to if we had filers without qualifying children, a child, no qualifying child. You still might qualify for the credit, but the amount of the credit you would think would be much less because you can think about different tiers from zero to four in terms of the maximum level of the credit and the phase outs of the income levels to get that credit. All right. So one, are you a married taxpayer whose filing status is married filing separately or head of household? Same kind of routine we were looking at before. If yes, you can't take the credit. If no, continue. Number two, were you or your spouse if filing a joint return at least age 25, but under age 65 at the end of 2022? So check yes, if you or your spouse if filing a joint return were born after December 31st, 1957 and before January 2nd, 1998. If your spouse died in 2022 or if you are preparing a return for someone who died in 2022, see publication 596 before you answer. So if yes, we'll continue. So once again, general question without the exception, were you or your spouse if filing a joint return at least age 25, but under age 65 at the end of 2022? If yes, so we've got that lower threshold of 25, continue. If no, you can't take the credit. Three, was your main home and your spouse's if filing a joint return in the United States for more than half of 2022? Members of the military stationed outside the United States see members of the military later. So there's an exception there. If yes, continue. If no, you can't take the credit. Number four, are you filing a joint return for 2022? If yes, skip questions five and six and go and go to step five. If no, you can continue. So are you filing a joint return? Let's just continue with the no just to see what they have here. Five, could you be a qualifying child of another person? So if you're a qualifying child of another person, you would expect that you wouldn't generally get the credit because you would be a dependent of someone else. And you would. So you would think you wouldn't get a credit there. So we're going to say if yes, you can't take the credit. If no, we're going to continue. Let's say no, six, can you be claimed as a dependent on someone else's 2022 return? And so there could be an exception here. But generally again, if you could be claimed as a dependent, you would think you wouldn't be able to get the credit generally. So if yes, you can't take the credit. If no, go to step number five. Step number five, earned income. Are you filing schedule SE because you were a member of the clergy or you had church employee income of $108 and 28 cents? That's an unusual situation. The member. But if yes, see clergy and church employees, which is a kind of more unusual type of situation. If no, complete the following worksheet. So enter the amount from form 1040 or 1040 SR line one Z. It's going to be right here on your on your form 1040 one Z adding like the normal income, which is typically like the earned income stuff to enter the Medicaid waiver payments amounts. Excluded from income on schedule one. So with obviously tax software kind of helps us with that item. If we have that item lines eight, eight S unless you choose to include these amounts and earn income, in which case enter zero C instructions for schedule one line eight S. Now, why would you want to include it in income note that the income more income could result in more of a credit or less of a credit. Depending on if you need more income to maximize the credit because we can think about that credit as basically a curve. It goes up as your income goes up up to a certain point then back down tip. If you and your spouse both receive Medicaid waiver payments during the year you and your spouse can make different choices about including the full amount of your payment in earn income. Enter only the amount of Medicaid waiver payments that you or your spouse if filing a joint return do not want to include in earned income. So you might have some capacity to adjust your earn income to some degree in order to maximize that level of income to maximize your earned income credit. Three subtract line two from line one for enter all your non taxable combat pay if you elect to include it in earned income. Now combat pay is another one where you might have the option then to include it or not. Why would you include it or not? Because again, you could increase or decrease the income subject to the credit and it goes up to some degree and then it'll go back down as your income goes up to a certain level. And then after that level to decrease it. So also enter the amount of your non taxable combat pay online line I of form 1040 or 1040 SR. So caution electing to include non taxable combat pay may increase or decrease your EIC figure their credit with and without your non taxable combat pay before making the election. Five add lines three and four. This is your earned income. All right. Number two, were you self employed at any time in 2022? Or are you filing schedule SE for self employment taxes because you are a member of the clergy or you had a church employee income or our filing schedule see business income schedule as a statutory employee. So as a statutory employee. Yeah, if yes skip question three and and step six go to worksheet be if no continue number three if so if we say no continue if you have three or more qualifying children gentlemen who have a valid social security number is your earned income less than $53,557. That's our our income threshold to take the credit per tier in terms of three children to one and zero children 59,187 if married filing jointly two children the next tier qualifying children. Then the threshold is 49,399 55 529 if married filing joint if you have one children, then the threshold is earned income of 43 492 and 49 622 of married filing jointly. No qualifying children. Then we have earned income less than 16 480 or 22 610 if married filing joint. If yes go to step six if no you stop here because your income is your earned income is over the threshold to take the credit number six how to figure the credit. Do you want the IRS to figure the credit for you if yes see credit figured by the IRS later if no you can go to the worksheet. Now normally oftentimes you would be taking a look at software to kind of help you figure the credit meaning if you're below these thresholds then you're going to be able to take the credit but it's going to be subject to the tables basically. So let's scroll down and just take a look at the tables and then we'll also take a look at some tax worksheets and plug it into the tax software so here's the earned income credit. So for example, if the amount you are looking up from the worksheet at least this but less than this and then and your filing status is single head of household and then the married filing joint. Then then this is your credit amounts right and so here's your your earned income. And then we have like our three tiers for zero children one children two children and three children and we have to have separate ones for single versus married. Now obviously tax software kind of has this in in there but it gives you an idea to see where the maximum income level is right. So if I if I scroll down if let's say I say zero and I'm scrolling down notice the credit is going up as the income is going up it's going up and then if I go over to this now I'm going to jump over here. And it's going up as the income is going up and you'll recall that the maximum here if I once I get over the 16 480 it's going to go back down the maximum credit should be at that 560. So I'm going to say all right it's still going up and then if I go down here it's still going up up up and then 560. So now I've hit the cap. You can see we've hit the cap right here for the zero for the zero children at 560 at 7300 to 7500 it plateaus there for some time. It's still there and then it plateaus there till I get to right here and or right here now at 9200 it starts going down. So notice that's a different threshold than than this threshold 16 480 when is when it goes away completely. But really this number becomes important right. This is where you're maximizing up to that 9200 and then it starts going down down down down down down and so you may get the credit over here but it's going to be quite small. And then down to here 16 4 we saw 16 480 is when it goes away right 16 480 it goes away. So you can you can do that same kind of thing for the single filers where it'll have it'll have the maximum you know with one I'm sorry with one child. Then then you'll see the same thing. It'll max out at the 3733 but that's not going to be at the threshold of the 43 492 that's when it's going to go away entirely. So when are you going to hit what what income level do you need to be at to hit that maximum if you have one child to child three child. And sometimes it's useful to use software to kind of to kind of get it gauge that as well. We might do some examples you can play with the software and kind of see when it hits that match maximum and we'll go back and forth from the software to the tables to check it out.