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Beginning in tax year 2002, NONTAXABLE earned income will NOT be used in
the calculation of the "Earned Income Credit." Also, the credit will
NOT be based on MODIFIED adjusted gross income (MAGI). Instead, ONLY
"adjusted gross income" (AGI) will be used. In addition, the definition of
a QUALIFYING CHILD will be the following:
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The qualifying child MUST be your son,
daughter, stepson, stepdaughter, or a descendant of such individual, OR
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A brother, sister, stepbrother, stepsister,
or a descendant of such individual, OR
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An "eligible foster child" which is defined
as an child who is placed in your home by an authorized placement
agency, AND the you care for the child as if it were your own.
Furthermore,
beginning in tax year 2002 there will be a NEW tie-breaker rule that will
be used when two people are eligible for the "Earned Income Credit" for
the SAME child
AND there is NO agreement between the
two people who should claim the Earned Income Credit. The OLD law stated
that only the person will the highest modified adjusted gross income
(MAGI) qualified. The NEW tie-breaker rules in chronological order are the
following:
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If ONE
taxpayer is the child's parent, that taxpayer is the only one who can
claim the credit, OR
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If BOTH
taxpayers are the child’s parents, only the parent that lived with the
child MOST during the year can claim the credit, OR
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If BOTH
taxpayers are the child’s parents and the child lived with both EQUALLY,
then only the parent with the highest adjusted gross income can claim
the credit, OR
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If no one
claiming the child is the child’s parent, then only the taxpayer with
the HIGHEST adjusted gross income can claim the credit.
Finally,
married couples filing a joint tax return will have an increase in the
beginning & ending of the "Earned Income Credit" phase-out by $1,000. In
year 2005, it will increase to $2,000, and in year 2008, it will increase
to $3,000. After year 2008, it will be adjusted annually for inflation. |
