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Eliminating some of the confusion over the EITC

Many would say that the earned income tax credit is one of the most beneficial and confusing credits in the U.S. Tax Code. Each year, a number of people who would otherwise qualify for this credit pass it by, even though it could save them a significant amount on their tax bill or provide them with a refund.

Part of the problem with eligible people not claiming this tax credit could be that doing so makes a taxpayer vulnerable to an audit. You see, claiming this tax credit does not require you to use any other government programs in order to qualify for it. Because of this, it is also one of the most often abused, and the IRS has cracked down on those who use it in recent years.

Make sure you qualify

Just because the IRS scrutinizes the returns of those who claim the EITC more closely does not mean you shouldn't claim it. You just need to make sure you qualify for it, which means you must meet the following criteria:

  • You must be a legal resident or citizen of the U.S.
  • You must live in the U.S. no less than half of the tax year in question.
  • You must have earned income from a business, wages or a salary during the tax year.
  • You and your spouse, if any, must use the "married filing joint" tax status.
  • Your child must qualify under the rules in order for you to claim him or her.
  • Your income cannot exceed a certain amount, depending on your marital status and the number of children you have.

If you are not sure whether you qualify to claim the EITC, you may want to consult with a tax attorney to make sure. Filing for this credit in error could raise a red flag with the IRS.

What happens if the IRS audits you?

If you receive a notification of an audit from the IRS, don't ignore it. Ordinarily, the IRS will issue such notices when it believes you owe more money, attempted to defraud the government or otherwise did something wrong. Even if you claimed the EITC in good faith, if it was a mistake for you to do so, you will probably end up in trouble with the IRS.

The best course of action would be to avoid this eventuality in the first place, but if you end up the subject of an audit, it would be in your best interest to discuss it with an attorney before submitting a response.

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