IRS Assists Tax Professionals With EITC Claims

by Mike Godfrey, Tax-News.com, Washington

30 January 2006

In an announcement last week, the Internal Revenue Service reminded tax professionals that they can help clients receive critical tax relief from the Earned Income Tax Credit using tools that the IRS has developed to help prepare accurate EITC claims in the light of recent changes to the credit.

For the 2005 tax year, the EITC income limits also increased significantly, especially for married taxpayers who file jointly. The maximum credit amount also increased to $4,400. In addition, a number of new provisions seek to ease the burden on victims of hurricanes Katrina, Rita and Wilma.

Tax professionals prepared 71 percent of the 21.1 million EITC claims for tax year 2004, and EITC recipients received more than $39 billion in tax relief. Each year, millions of Americans who work but earn modest incomes fail to claim the EITC. The complex tax credit also is prone to error by people who mistakenly claim the refund.

To assist tax professionals in preparing accurate claims, the IRS has created an EITC Tax Preparer Electronic Toolkit on its website, which is designed to: help determine clients' eligibility for the EITC; ensure full compliance with EITC rules and regulations; and help preparers file accurate claims on behalf of clients.

“This year, it’s easier than ever for both tax preparers and taxpayers to complete accurate claims,” stated Mark Everson, IRS Commissioner.

“Because tax professionals prepare the vast majority of EITC claims, the IRS is appealing to them to use these tools as they perform due diligence. Both the IRS and our allies in the tax professional community need to ensure that all eligible taxpayers – but only eligible taxpayers – receive the EITC they deserve," he added.

The EITC is a refundable federal income tax credit for low-income working individuals or families. The credit was created in 1975 in part to offset the burden of Social Security taxes and as a work incentive. The amount of the credit varies, but it is generally determined by income and family size.

The maximum amount of earned income allowed is higher for 2005 than it was for 2004. A taxpayer may be able to take the credit for 2005 if they:

• Earn less than $31,030 ($33,030 if married filing jointly) and have one qualifying child;
• Earn less than $35,263 ($37,263 if married filing jointly) and have more than one qualifying child;
• Earn less than $11,750 ($13,750 if married filing jointly) and have no children.

The maximum amount of investment income also increased to $2,700. Generally, a qualifying child must meet relationship and residency requirements.

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