 Income Tax 2021-2022 Tax Software Earned Income Tax Credit, the EIC with one qualifying child. Get ready to get refunds to the max, diving into Income Tax 2021-2022. Listener Tax Software, you don't need Tax Software to follow along, but you might want to have access to the forms and schedules, which you can find on the IRS website, irs.gov, irs.gov, starting point. It's going to be the single filer, Adam Smith living in Beverly Hills, 90210. We've got one dependent, which will be a qualifying child for the purposes of the calculation of the child tax credit. We're focused here on the child tax credit and with one dependent and prior presentations. We talked about it with zero dependence, and then we'll go on to two and three or more in future presentations, hopefully. So, we have starting out the W-2 income, the 19-5-49, that's an unusual number. We'll explain it in a second here. We've got the 12,550 for the standard deduction, bringing the taxable income to the 6999. If we follow them to page two, the tax is calculated at the 698 by the software for the federal income tax, and then we have our credits down below. Now note, we have two things that will typically be playing kind of together here down below with regards to the credits. One's going to be our focus this time, the earned income credit, and the other is a focus that we looked at in prior presentations. That's going to be the child tax credit. So, the dependent child often will be a component of these two major credits, both of which have a large, if not complete, refundable portion to it, meaning that it could take your tax liability basically below zero. So, in this case, even though we only had a tax of the 698, we basically are ending up with a refund of the 6,590. That's not really a refund in this case because it represents money that we're receiving, not refunded to us. It's more like a benefit program. That's in essence what it means to be in this refundable credit area. Now note that we have the credit at the 3,618. The question people often have is if, well, if I have one child, then do I get to take the earned income tax credit? That's typically what will be answered on IRS websites. But then you really want to know where you're going to maximize the earned income tax credit. So, for example, we can think of it as a curve. We're thinking of it as a curve with one child. We'll look at single versus married. But if you have the one child, then if you go over these thresholds for AGI, you lose the credit. The maximum of the credit is the 3,618. That's the maximum credit. So that's the peak of the curve when we're talking about one dependent child or one qualifying child. So now we're at the peak right here. You can find that by looking at the IRS, the 1040 instructions. I'm looking at the tables for the earned income tax credit. And if I look first at the non-married individuals and say, well, where can we max this thing out? It's somewhere between the 10,600 all the way down. Or as my income goes up through the threshold of the 19,550 or 19,549. So we're at the upper threshold, the upper peak of income threshold. If we go up above this amount, then it'll start to go back down. So you can have anywhere with your income between your income anywhere between with the one dependent anywhere between that 19,549. And if I bring my income down all the way down to the threshold of the 10,600, I'll still have that maximum credit. So if I brought my income down from 19,549 to let's say, what did I say it was the 10,600, the 10,600. So now I've got 10,600, I'm still maximizing the credit calculation at the 3,618. Now, if I go below that amount, I'm going to start to lose the credit will start to go down. And you can see that with the table here. So that's where the peak of the credit is if I start going below that earned income of let's say 8000 earned income, then the credit here is going down. If I say it's going to be 7000 earned income, then we have it going down. If I say it is at, let's say 3000 earned income, then the credit is going down. If I say we have 2000 earned income, the credit is going down. And obviously, if I don't have any earned income, let's say it was $100 of earned income, then you get a very little amount of the credit. If you had no earned income, we would be at zero. If we bring it back up, we bring it back up to the lower threshold of the 10,600. That's the max, we got the 10,600. So now it's back up to the max, the 3,118. If single, that max extends all the way down as we saw to the peak. We're at the peak. We stay at the peak all the way through the 19,549, I believe. So we can go 19,549, and we're still at the peak maximizing out the credit. And then if we go above that, we're going to say, okay, what if I was at 20,000? Then the credit is going back down because it maxed out at the 3,618. If I go to 22,000, the credit is now going back down because we're over the income threshold. If I go to 23, let's say 25,000, and we can go up as high as 42 before we lose the credit entirely. So if I bring it up then to 2029,000, then credit's going down. If I go up then to 20, let's say 35,000, 35,000, credit is going down. If I go up to 37,000, then credit going down fairly substantially. If I go to 40,000, 40,000, still getting it, but it's pretty slow, pretty low. And if I go up above 42,200, then I lose the credit. That's the maximum if I'm single with the one qualifying child. So that's the general idea of it. Now, the couple other things that you can take into consideration is if your income was lower than the threshold, let's say it was like 500 or 5,000, therefore you'd have a lower calculation of the tax, and your prior year income was higher, 2019, for example, jumping over to that item. Then that's two years back, I could say, well, what if this income was higher? Then I would say, okay, if I had the, let's say 15,000 here, or what was the end of my threshold, it was down to the 19, so 19,000 somewhere in that area, so let's just say 16,000. Then I would be calculating based on the 16,000, I'm maxing out the credit because I'm using the prior 2019, not prior year, but 2019 number in order to do the calculation. So let's bring it back down. If you had combat pay, you'd have to break that out separately there. And then you might also have a situation where you have someone who has combat pay. If they have combat pay, then say they only made 5,000 here, and then they had combat pay. That's usually going to be shown in box 12 with a Q of the W2. And so if I said they had another amount, let's say, let's say 7,000 in combat pay, then if I don't elect to include it in EIC, what will happen is the income will still only be 5,000 because they got paid in combat pay, which they don't have to pay taxes on is the general idea. But you might want to include it for the purposes of the earned income tax credit because it would be better. So I could go back on over and say include the combat pay, and that would then increase the calculation, bringing us up to the max, even though my income is only 5,000 for federal income tax purposes. That's the other kind of thing that's a little bit tricky. I'm going to remove that for now. Get rid of the combat pay for now. And then go back on up. So I'm back to the 5,000. Now, if we were married, if they were married, I could say, okay, let's say they got married. Where are the thresholds? And so now we've got married. And we're still saying that there's only one qualifying child. So two people got married. Now, first of all, let's first go back to the maximum. So if I go back to the max, which was around, let's say the max was at the 19, the 19, 5, 4, 9, 19, 5, 4, 9. So I'm going to say wages, 19, 5, 4, 9. So now you've got the maximum credit of the 3,618. Now, let's say they got married. Let's say Adam got married to someone who doesn't have a child, a qualifying child. Then if their income was over the threshold for married filing joint, then you'd lose the credit entirely. And notice the threshold isn't double for the single. It would be, it's only at 48. So if it goes up a few more thousand dollars, you actually kind of lose the credit. So you could, so let's imagine that happens. Let's imagine they got married. So they get married. Adam and Eve got married. And then the other spouse here, let's say that they earn, they earn 28, 559. So that would take us over the 48, 108 threshold. So if that was the case then you would say, okay, they got married. They still got the one qualifying child and they wouldn't have anything for the EIC because they would be over the threshold. So you got two people over the threshold due to the income level there. So again, in that instance, if they were filing separate, you would have at least one of them that would be getting the credit for the, that would be maxed out at the 3618. If they get married, then you might lose it. So you could see there could be possibly a disinceptive for marriage in this case. The second one wouldn't have not been receiving an EIC because they're over the threshold if there was no children involved in that case. Now if the other one was single and they didn't have any children and their income was like 11,550, they would be getting a credit of 1502. So let's say their income was 11,550, 11,550. Now you're at the 3199 and that would give you, you'd be getting the credit of 2,722 is what we're calculated here as opposed to if they were, if they were separate, you would think that one would be getting 1502 plus the 3618 or 5120 because you would think if they filed separate, one would be getting the maximum with no children of 1502. The other one would be getting the maximum of 3618. So it's possible that again the marriage could actually be disincentive in that case possibly. And we'll talk about two dependents later but let's just imagine now they got married Adam and Eve, they were in the exact same situation. They were both maxing out the credit at the 3618 and they both had a qualifying child. They got married so now they've got two qualifying children married filing joint and their income is now at the 3998 because they were both maxing out the credit at the 19549, which is the upper threshold for it to max out the credit as a single, single filer to max out the credit as a single filer as we saw here. And so they would be maxing that out and then if I go to page two then, so now they get the credit of the 315, 3,115, which again you would think if they didn't get married in that instance, they would both be maxing out the credit at 3618 times two for the two single filers. So you can see there's a significant kind of difference which could be a negative difference when getting married with the credit as far as I can catch. So that's something just to keep in mind because it can be kind of a shocker possibly. Okay, so now let's just get a feel for the curve. If you're married with one qualifying child, how can you maximize the credit out? Well, you can go as low as still the amount of the 10,006. So if our income was as low, if I go back on over here, I'm just going to put income in one of the two 10,006. Then if I go back on over, the credit is maxed at the 3618 and then we can go as high before it starts going back down again. We can go as high all the way over to the green area to the 25,500, 25,500, 25,500, 25,500, and then go back on over. It went down a little bit. It's 25,000, 25,499, 25,499. So there's the peak and then if you go beyond that, it starts to go back down. So then I'm going to say if income goes to 28,000, the threshold is going back down. And if we then go back down to 2025, or let's say I was going up 32,000, 32,000, then it starts to go down. If we bring it up to 37,000, then it's going down. And then if I bring it up to 40, let's say 42,000, then it's going down. And if I bring it up to 45,000, then it's going down. And if it goes over the 48,200, about we lose the credit entirely going the other way. If we bring it back down to the upper threshold to maximize it, that was the 25,499, 25,499, then we still get the max credit. We then bring it down all the way down to the bottom. It flattens out. And so you're still at the max and you can bring the income all the way down to the 10,600. So 10,600, 10,6 and we're still good. If I go below that, like if I go to 8,000 married filing joint where it goes down, if I go to 5,000, then it goes down. If I go to 3,000, then it goes down. If I go to 1,000, then it goes down. And if I don't have any earned income, then I lose it, right? So that's going to be the basic kind of idea of the curve that you want to kind of have in your mind with regards to marital status and the number of children. In the following presentations, we'll take a look at two qualifying children and then three or more.