Ohio Society of CPAs cautions tax payers not to overlook earned income tax credit

For More Information: Amy Johnson, Senior Manager, Public Relations E-mail: ajohnson@ohio-cpa.com 614.764.2727, ext. 341

(COLUMBUS, March 11, 2007) – In 2006 over 22 million taxpayers received more than $43 billion in earned income tax credit. But, the IRS estimates that nearly 25% of those eligible don’t claim the credit while millions who are ineligible attempt to claim it every year.

The Ohio Society of CPAs urges taxpayers to review the eligibility requirements and determine whether they can benefit from taking the credit on their 2007 tax returns.

The earned income tax credit is based on the amount of earned income and whether or not you have children who meet the relationship, age and residency requirements. The credit could be worth up to $4,700, so understanding who is eligible can save not only time but money.

Eligibility: Those who worked at least part of 2007 in either outside or self-employment may be eligible if your adjusted gross income is:

• Less than $12,590 and do not have any qualifying children
• Less than $33,241 and have one qualifying child
• Less than $37,783 and have more than one qualifying child

Restrictions: While these earned amounts increase slightly if you are married and filling jointly, the earned income tax credit does not apply to those who are married and filling separately. Also, if you don’t have a qualifying child, you must:

• Be between the ages of 25 – 65 at the end of 2007
• Have lived in the US for more than six months
• Not be a qualifying child of another person
• Not have filed Form 2555 or 2555-EZ related to foreign earned income
• Not have investment income exceeding $2,900

Income that is not earned income: Examples of income that is not eligible for the credit includes pensions and annuities, social security benefits, alimony and child support, unemployment compensation and veterans benefits.

Qualifying Child: A child who is your dependent must be under age 19 at the end of 2007, be under the age of 24 and a student at the end of 2007 or permanently disabled regardless of age. This child must have lived with you for more than half of 2007, or have been away from home due to particular reasons, such as school attendance, business, illness or military service.

Although sometimes a child meets the requirements to be claimed by both parents, only one parent can claim the child for this credit.

Military income: Members of the military can choose to include all their nontaxable combat pay in earned income for the tax credit. But, it’s important to know if including this pay will increase or decrease your tax credit.

If your earned income without your combat pay is equal to or greater than these amounts, you will not benefit from including your combat pay in your earned income:

• $5,550 with no children
• $8,350 with one child
• $11,750 with two children

The amount of your nontaxable combat pay can be found on Form W-2 in box 12 with code Q. 

If you have questions about eligibility or on tax laws for your particular situation, consult a CPA.

The Ohio Society of CPAs is also offering free tax return preparation to deployed military service men and women from Ohio through Operation CPA. To participate in Operation CPA or to find a CPA in your area call 888.959.1212.

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The Ohio Society of CPAs, established in 1908, represents more than 24,000 CPAs in business, education, government and public accounting. The Ohio Society’s members not only meet statutory and regulatory requirements as CPAs, but also embrace the highest standards of professional and ethical performance. This is achieved through ongoing professional education, comprehensive quality review and compliance with a strict Code of Professional Conduct. 

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