By Tom Breedlove, HomePay by Breedlove
The deadline for nannies to receive their W-2 from their employer recently passed (February 2nd) and now it’s time to look ahead to the April 15th tax filing deadline. Everyone wants as big of a refund as possible, so it’s important to pay attention to any potential tax breaks for which you may qualify. One of the tax breaks that many Americans fail to capitalize on is the Earned Income Tax Credit (EITC).
The EITC is available to workers that follow the tax rules by reporting their income and filing a tax return, but live in more modest means. The credit is income-restricted, so for the 2014 tax year, your Adjusted Gross Income (AGI) must be less than:
- $46,997 ($52,427 married filing jointly) with 3 or more qualifying children;
- $43,756 ($49,186 married filing jointly) with 2 qualifying children;
- $38,511 ($43,941 married filing jointly) with 1 qualifying child; or
- $14,590 ($20,020 married filing jointly) with no qualifying children.
Your AGI is your gross (pre-tax) wages minus certain deductions and is listed on line 37 of your personal 1040. Aside from the income restrictions, you also must also meet the following tests to qualify for the EITC:
- You and your spouse must be between the ages of 25 and 64;
- You, your spouse and your qualifying children must have valid Social Security Numbers;
- You cannot use the “married filing separately” filing status;
- You and your spouse must be a U.S. citizen or resident alien for the entire year;
- You and your spouse cannot be claimed as a qualifying child by someone else;
- You cannot claim the foreign earned income exclusion (which relates to wages earned while living abroad)
- Investment income must be $3,350 or less for the year (investment income includes interest, dividends, capital gains, and royalties
Assuming you meet these qualifications, the maximum tax credit available to you for 2014 is:
- $6,143 with 3 or more qualifying children;
- $5,460 with 2 qualifying children;
- $3,305 with 1 qualifying child; and
- $496 with no qualifying children.
Note: Since the Earned Income Tax Credit is a “refundable tax credit,” it is possible to receive a federal tax refund that is greater than the amount of taxes you paid in during the year.
If you need help determining if you qualify for the Earned Income Tax Credit, the IRS has anEITC Assistanton their website that is easy to follow.