The Earned Income Credit (EIC) is the party starter. It is loved by taxpayers because if you qualify it could get you more than $6000. The best part is since its refundable, you can get the unused portion in the form of a tax refund. It is one of the tax credits that everyone should take some time to see if they qualify for. The bad news is not everyone is aware of it since only four out of five people who are eligible for the credit claim it.
This tax year, there are some changes being made to this valuable tax credit and we thought you should know about it. If you qualify for this tax credit, you need to know about the new rules put in place that could affect your taxes.
Now, let’s jump right in.
- If You Claim the EIC Your Refund Won’t Be Released until February 15, 2017
Even if you file your form 1040 early, the IRS has stated that they will be holding all tax returns claiming the EIC until February 15th. This delay is to make sure that EIC fraud and the tax gap is decreased. They figure they can do this by matching tax return withholdings with the ones that your employers send off by the end of January. The good news is if you file after February 15th you will still have your refund processed in the normal time frame.
- You Need a Valid Social Security Number
One of the qualifications of claiming the EIC is having a valid social security number. However, in prior years, you could claim it if you obtained a valid social security number by amending previous returns.
However, the new tax law has put a stop to this. Now, when you file your tax return you need to have a valid social security number to claim the EIC and even if you obtain one later you will not be able to go back and make amendments to your returns. Therefore, the only solution to take advantage of the credit in this scenario is to file for a filing extension with the IRS.
- Tax Penalties for Those Who Fraudulently Claim the EIC
The tax penalties have made fraudulently claiming the EIC very unattractive. However, now the EIC falls under the “accuracy penalty”/ “negligence penalty”. Furthermore, the underpayment penalty can be applied to the amount of taxes that you owe when the EIC is removed from your return. Lastly, keep in mind that you can face ten years in jail if the IRS finds you guilty of fraudulently claiming this credit.
This should be enough to make sure that you meet ALL the EIC requirements.
Despite all the changes this tax year, these changes are put in place to benefit taxpayers. To stay in the loop about new tax laws and changes make sure you check with TurboTax 2017 from time to time.