You'll need to sign in or create an account to connect with an expert.
No. A state or local income tax refund is not "earned" income. In fact, if you itemized deductions the previous tax year, a state or local refund is considered to be taxable income. But you did not "earn" the income by working---preparing your own tax return is not "work" that counts for getting earned income credit or the child tax credit.
Thanks for your response. Legally, I see that self-preparation of tax returns matches the description of work done for myself and per IRS definition of earned income any income earned as a result of work done for myself counts as earned income. Is there precedent you are aware of where IRS has rejected accounting such income as earned income?
You are confused. If you were self-employed you can deduct the cost of tax preparation as a business expense on a Schedule C where you enter your business expenses. Using do-it-yourself- tax software to prepare your own tax return is not "work" for which you are being paid and is not earned income for which you can get EIC.
Paying for tax preparation software is not same as self-preparing tax returns using the software, which is work done for self and any tax refund earned as a result is income. IRS recognizes state and local tax refunds as income, when itemizing deductions and deducting state and local taxes and I don't see anywhere where this does not fit the definition of earned income when work was done for self by self-preparing the tax returns to earn this income. Please show me any precedent, where such income has been rejected by IRS from being accounted as earned income.
Filling out your own tax return is not work you get paid for. A Refund is not compensation from working. A refund is a return of your own money from withholding or from refundable tax credits. Nobody is paying you to file your return. Earned income is only W2 wages and a net profit from self employment income on schedule C. It is for work other people pay you.
See IRS pub 596 page 7 for what Earned Income includes
https://www.irs.gov/publications/p596
On that link you posted in your top question which Types of Income do you think a state refund falls under?
Please click here for the IRS definition of earned income. A state tax refund received from self-preparing your own tax return is not earned income. A refund is a reimbursement for the excess amount paid in taxes to the government.
https://www.law.cornell.edu/uscode/text/26/32#c_2
(2)Earned income
Another main reason for what is earned income is that you paid Social Security and Medicare tax on it. Like for a job the employer takes out SS & Medicare from your paychecks. It will be on your W2 boxes 4 & 6.
For self employment you pay the 15.3% SS & Medicare as the Self Employment tax on a gross profit of $400 or more. Self Employment tax will be on Schedule SE. It is in addition to any regular income tax you pay on the income.
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
neelay_das
New Member
_ross_f22
Level 1
ndc24075
Level 3
jjamuso
New Member
beg121557
Level 1
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.