Understanding Earned Income and the Earned Income Tax Credit

April 14, 2023

“ Earned Income ” and “ Earned Income Tax Credit ” the both words sound familiar right?. But both have a huge difference in terms of tax deductions. Earned income is money that is earned in compensation for doing work, such as salaries, wages, commissions, bonuses, tips, and net self-employment income. Long-term incapacity, benefits from union strikes, and, in rare circumstances, payments from particular deferred retirement compensation agreements can also be included.

Your next query would be like this “What Type of Income Are Not Earned?”.

Not all type of income are earned, here’re a few examples of unearned income, i.e., Interest earned, Dividends, social security benefits, unemployed benefits, and more. You do not owe payroll taxes on the amount when you receive an unearned income, but still owe taxes on unearned income. Dividing earned income and unearned income is quite difficult for a normal person. At the end of your financial year an expert professional one can sort every tax filing vows for you. As the leading Income Tax Return Filing Agency in Kochi, Kerala, Chennai, we at Emblaze will delve through your financial portfolio and double-check all of your income and savings. We can also advise you on how to manage your financial portfolio successfully.

Earned Income Tax Credit ( EITC ) is a refundable tax credit, which indicates that people who have a larger tax credit than their tax liability get a refund. So what is the tax credit’s amount? The credit amount and your qualification for it are based on the amount you get annually. If your earned income exceeds the IRS threshold, you are not eligible to get the tax credit. Moreover, you need to meet the certain criteria’s to eligible for the tax credit.

The EITC exists to lower your tax and may even provide you a return. The authorities have announced the age requirements. If your child meets the requirements for age, residency, and relationship or not, then;

– At the end of the fiscal year, a person must be 25 or younger.
– No adult should be dependent on another adult.

The other criteria’s include as:

Earned income: The taxpayer must get income from self-employment, wages, or other sources.
Status : The status of the taxpayer is, must file either a single person or the head of their household, a married couple filing jointly or a qualified widow or widower with a dependent child.
Age: For married couples filing jointly, both parties must be between the ages of 25 and 65 as of the end of the tax year.
Investment income: The taxpayer’s total income for the year cannot exceed $3,650.

These are some of the criteria’s you must follow while filing an EITC.

How To Claim EITC? This could be a discussion for all, or The majority of people might not be aware of the tax returns. You can ask a tax expert for support if you need clarification on your eligibility or assistance with the tax preparation procedure. Tax experts can assist you with filing your tax return, determining your eligibility for the credit, and providing any further information you may need. Emblaze, we are the best Income Tax Consultants in Kochi, Kerala, Chennai will help you clear all your queries regarding tax filing.

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