Are You Entitled to a Tax Refund? - Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a valuable financial boost for low income family child care providers (and parents) who earn less than $49,078 in 2011.

Eligibility for the EITC is based on your family's adjusted gross income (Form 1040, line 37). This amount includes the profit from your business (the bottom line on Schedule C) as well as the gross income from your spouse.

If you have one child, you are eligible for the EITC if your adjusted gross income is less than $41,132 married filing jointly ($36,052 single). If you have two children the eligibility limits are $46,044 married filing jointly ($40,964 single). Three or more children - $49,078 married ($43,998 single).

Your child can be adopted, foster child, grandchild, stepchild, brother, sister, or stepbrother. The child must either be under age 19 at the end of 2011, under age 24 and a full time student, or any age and permanently and totally disabled. The child must have lived with you for more than six months in 2011 (unless the child was born in 2011).

If you are age 25-64 and don't have children you are eligible if you make less than $18,740 married filing jointly ($13,660 single).

Depending on the number of children you have, the EITC maximum benefit is $5,751.

The EITC is a refundable tax credit, which means you can get a check sent to you for the credit, even if you don't owe any taxes! If you are eligible, take advantage of this valuable credit and tell the parents in your program about this credit.

To claim this credit, file Schedule EIC Earned Income Credit when filing Form 1040. Claim the credit on Form 1040, line 64a.

For additional information: IRS EITC Home Page and National Women's Law Center Q&A on the EITC. 

Warning!

Because of the way the EITC works, there are some circumstances where having lower business deductions will increase your credit (yes, this is kind of crazy). As a result, some child care providers (and tax preparers) may be tempted to increase their tax refund by arbitrarily reducing some business expenses to obtain a higher EITC. This is not allowed. You must claim all your allowable business deductions, regardless of the consequences to your EITC.

Image credit: bargaineering.com

For more information on the EITC, see my book 2011 Family Child Care Tax Workbook and Organizer.

Comments

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