Question

Diane is a single taxpayer who qualifies for the earned income credit. Diane has two qualifying children who are 3 and 5 years old. During 2019, Diane's wages are $18,900 and she receives dividend income of $900. Earned Income Credit Phase-Out Ranges Number of Qualifying Children Other than joint filers Joint filers Phaseout Begins Phaseout Ends Phaseout Begins Phaseout Ends None $8,650 $15,570 $14,450 $21,370 1 19,030 41,094 24,820 46,884 2 19,030 46,703 24,820 52,493 3 or more 19,030 50,162 24,820 55,952

Calculate Diane's earned income credit using the EIC table in Appendix B.

Answer 1

Tax credit reduces the tax liability of the taxpayer. Through tax credit, an individual can determine the tax payable (tax liability) by deducting tax credit from the total tax payable.

Diane's earned income = Wages + Dividend income = $18,900 + $900 = $19,800

Diane has two qualifying children who are 3 and 5 years old.

For 2 qualifying children, phaseout for other than joint filers begins at $19,030

Up to $19,030 of Earned Income, Earned Income tax credit is $5,828 for other than joint filers.

Tax credit gradually reduces as the Earned Income exceeds $19,030 and the phaseout ends at $46,703 for other than joint filers.

Using the EIC table in Appendix B, Diane's earned income credit is $5,661 for 2019 for the Earned Income of $19,800.