The income tax is a complicated system, and for people who owe large consumer or mortgage debts it can cut into the savings necessary to pay debts and force people into Las Vegas bankruptcy. One way the federal government reduces the tax burden on people with low incomes is called the “Earned Income Tax Credit” (EITC), which Congress enacted in 1975. Those who claim it on their income taxes can stay out of poverty, keep some of their earnings, and not file bankruptcy. Here’s how it works.
- To qualify for the credit, you need to earn income from employment (including self-employment or a business that you own) or disability plans. Unearned incomes, such as dividends, Social Security benefits, unemployment benefits, and child support are not “earned.” The IRS defines “earned income” here.
- There are other qualifications, such as being a citizen or permanent resident, not filing for foreign income exclusion, filing jointly if married, and not listing yourself as a dependent of another.
- Your earned and unearned incomes cannot be greater than a certain amount depending on your marital status and the number of “qualifying children” you claim to have on your tax return. For single individuals with no children, the amount of earned income and adjusted gross income for 2012 must be less than $13,980. The maximum credit in this instance will be $475. All investment income must be less than $3,200.
- Having “qualifying children” increases the credit, and the definition of “qualifying children” is fairly broad. They need not be your own biological children, but can be adopted, grandchildren, even siblings. If they are permanently disabled, they can be of any age at the end of the filing year; otherwise they must be younger than you and either under 19 (or 24 if a full-time student) at the end of the filing year.
- After crunching all the numbers, if your tax liability is lower than the amount of the credit, you will receive a refund based on the difference between the two. The maximum credit for 2012 is $5,891 for those who have three or more qualifying children. The credits can be found here.
By claiming the EITC, you can save money on your tax bill and use the credit to pay debts instead. Alternatively, the credit can help you afford to file bankruptcy if necessary. For more information on the EITC, read here.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.