vagabond

A common sentiment on these forums is low regional pay. I do not have the solution to that, but I'd like to alert you to the Internal Revenue Service's Earned Income Tax Credit (EITC). For reasons I do not understand, it's not used very much by tax preparers or taxpayers. As with any government program, this has its own hoops and obstacle course, the primary one of which is EITC Thresholds. Hope this helps some of you. It's burdensome, but try filling out the forms for farmers! They are nearly incomprehensible and I don't look forward to them.

You must meet the following EITC requirements:
Must have a valid Social Security Number

You must have earned income from employment or from self-employment.

Your filing status cannot be married, filing separately.

You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.

You cannot be a qualifying child of another person.

If you do not have a qualifying child, you must:
be age 25 but under 65 at the end of the year,
live in the United States for more than half the year, and
not qualify as a dependent of another person

Cannot file Form 2555 or 2555-EZ (related to foreign earn income)


Current Tax Year 2006Earned income and adjusted gross income (AGI) must each be less than:
$36,348 ($38,348 married filing jointly) with two or more qualifying children;
$32,001 ($34,001 married filing jointly) with one qualifying child;
$12,120 ($14,120 married filing jointly) with no qualifying children.
Tax Year 2006 maximum credit:

$4,536 with two or more qualifying children;
$2,747 with one qualifying child;
$412 with no qualifying children.
Investment income must be $2,800 or less for the year.

The maximum Advance Earned Income Tax Credit (AEITC) for TY 2006 the employer is allowed to provide throughout the year with the employee's pay is $1,648.

A “Qualifying Child” - A “qualifying child” may enable a taxpayer to claim several tax benefits, such as head of household filing status, the exemption for a dependent, the child tax credit, the child and dependent care credit, and the earned income tax credit. Prior to 2005, each of these items defined a qualifying child differently.


Next Tax Year 2007Earned income and adjusted gross income (AGI) must each be less than:
$37,783 ($39,783 married filing jointly) with two or more qualifying children;
$33,241 ($35,241 married filing jointly) with one qualifying child;
$12,590 ($14,590 married filing jointly) with no qualifying children.
Tax Year 2007 maximum credit:

$4,716 with two or more qualifying children;
$2,853 with one qualifying child;
$428 with no qualifying children.
Investment income must be $2,900 or less for the year.

The maximum Advance Earned Income Tax Credit (AEITC) for TY 2007 the employer is allowed to provide throughout the year with the employee's pay is $1,712.

ToiletDuck

This should be a sticky or on the webpage upfront.

On another note I've farmed my whole life till now and the paperwork is incredibly bad. Given the fact that many farmers don't have higher level educations it's quite the problem.

LAfrequentflyer

You pay tax on a Roth so you don't have to pay taxes on it later.

On a traditional IRA - you get a tax break. However, you pay tax when you withdraw.


-LAFF

ToiletDuck

Can you post more info on this?

vagabond

Yes, beeker, could you please indicate which tax credit one can get by contributing to a Roth? I read through IRS Publication 590 and could not find a reference to an income-based tax credit associated with a Roth.

My understanding of the Roth is that the contributions made have already been taxed, therefore you do not get taxed again when you withdraw. There is also no age limit by which you need to make mandatory withdrawals. The limitations are on the front end when you contribute and they have to do with your income level and age.

Tax year Under age 50 Age 50 or older
2001 $2,000 $2,000
2002-2004 $3,000 $3,500
2005 $4,000 $4,500
2006-2007 $4,000 $5,000
2008 $5,000 $6,000
2009-2010 $5,000 indexed $5,000 indexed plus $1,000

And btw guys, this thread is on the EITC. Start your own thread!

ToiletDuck

Too bad I'm 24 and don't qualify.

vagabond

Thanks, beeker. I looked at Form 8880 and worked the numbers in my head for the sake of example. Glad our benevolent government thought to give po folks such a credit, but it forgot that people who make so little money usually do not have anything extra to put into a retirement vehicle. Note the severe restrictions and the low percentage (0.1 factor) as your income approaches $50,000. And it appears that you have to married filing jointly to even get the 0.1. I'd like to meet someone who actually was able to take such a credit!

LAfrequentflyer

Get Taxes for Dummies - better yet just read the chapters you need at the book store...

-LAFF

ToiletDuck

Does TurboTax do these things for you?

vagabond

Man, who would think a thread on a subject as mundane as the Earned Income Credit can generate so many views and replies! It warms my little heart to see this. Now if only we could get TonyC and calcapt to participate. Let's see how they can turn tax credits into a discussion of pimping and flirtation. If anybody can, they can.

beeker, to be honest with you, I always use software in tax preparation and haven't had to look at an IRS booklet in a very long time. And because my investment income has always been more than $2700 and my earned income greater than the statutory limits, I have never claimed this credit for myself. However, in answer to your question, there is an Earned Income Credit Worksheet that will take you through the painful details. If at the end of this torture you find you are eligible for the EIC, you enter the number on Line 66 of Form 1040. If you still want more information, consult IRS Publication 596.

I'm glad to see you read and re-read posts before posting a reply. LAFF does not have the genetic makeup to insult anyone. He's a great guy. I wish everyone on the forum could be like him.