Low income and multiple dependents

[jeffdnavarro]

I have a very low income and will be filing single. I am barely required to even file, I made less than $15K for 2020. I am able to claim multiple children as dependents. Is it beneficial to do so or do I max out the benefits of multiple dependents with such low income? 

thank you for the help! 

[RayW7]

You will not max out your benefits due to your low income.  If you have multilabel dependents that qualify be sure to add them all.  The Earned Income Tax Credit can be substantial.  Be sure to see if you qualify for Head of Household filling status.  TurboTax will guide you through these questions. 

Can I claim the Earned Income Tax Credit?

If you were married filing jointly and earned less than $56,844 ($50,954 for individuals, surviving spouses or heads of household) in 2020, you may qualify for this tax credit, or even for a refund check. It's complicated, but the Earned Income Tax Credit (EITC) is worth exploring if you or someone you know has modest earnings.

• The credit reduces any federal income tax you owe, dollar-for-dollar.
• If the credit completely eliminates your tax bill, and some credit is still left over, you can actually get a cash refund for the remaining amount.

To help you find out if you qualify, TurboTax asks simple questions so you can get the largest possible credit.

Tests for qualifying

First you have to qualify. Then your income has to be within stated limits. Finally, if you have one or more kids, they have to qualify too for you to receive a larger credit. If you pass all these tests, you could get a credit of as much as $6,660 for 2020 depending on your income and the number of children you have.

Once you determine that you qualify for the credit, use the Earned Income Credit table found in the instructions for Form 1040 to look up your income and find out the amount of credit you're entitled to.

You qualify if:

• You have income from earnings (for example, from a job, your own business, union strike benefits, certain long-term disability benefits).
• You did not receive more than $3,650 in interest or dividends, or income from rentals, royalties or stock and other asset sales during 2020.
• You are single or, if married, do not use the Married Filing Separate status.
• You, your spouse and children, if applicable, all have Social Security numbers.
• You and your spouse are not considered as a qualifying child of someone else.
• You are not excluding any income you earned in a foreign country on your return.
• You are a citizen or resident of the United States.
• You have dependents, or
• You do not have a qualifying child, but you and your spouse are between 25 and 65, not the dependents of anyone else, and you have lived in the United States for more than half of the year.

How much can I earn and still qualify?

This credit is targeted at households with modest incomes, so if you earn "too much" you may not qualify. Just how much can you earn and still qualify? It depends on how many qualifying children you have (we'll define this in a moment). Those with the lowest income qualify for the biggest credits. Those with incomes above the phase-out threshold qualify for lower credits until they reach the point where the credit is eliminated completely. The rules have been liberalized to result in higher credits for many households, especially those with three or more qualifying children. The following table shows the 2020 income limits for receiving credits and the maximum 2020 credit amounts.

[jeffdnavarro]

I am certain that I qualify for the EITC, and I will likely eliminate my tax bill. More dependents = more credit right? Or is there a point at which more dependents doesnt mean more credit? I am debating on whether or not I should let my ex-spouse to claim more dependents since the income is much higher. 

[KathrynG3]

Not necessarily. Yes, the maximum Earned Income Credit is for 3 dependents. TurboTax will calculate your maximum allowable credit for your situation.

There is an IRS worksheet (page 30, link below) and a table (page 31 in the link below) that explains the maximums credit based on income and number of dependents. Keep in mind that the credit is reduced as income increases beyond a certain level. It is best to look at the table so you know the full range for the maximum credit.

Also, keep in mind that the non-refundable portion of the Child Tax Credit is impacted by the Earned Income Credit.

For more details, see: What is the Earned Income Credit? 

See page 30 of the IRS Earned Income Tax Table 

@jeffdnavarro

[Opus 17]

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@jeffdnavarro wrote:

I am certain that I qualify for the EITC, and I will likely eliminate my tax bill. More dependents = more credit right? Or is there a point at which more dependents doesnt mean more credit? I am debating on whether or not I should let my ex-spouse to claim more dependents since the income is much higher. 

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That's complicated and can only be determined by doing some test returns.

First you must understand that if the children live with you more than half the nights of the year, your ex can't claim anything unless you give your ex a signed form 8332 dependent release.  That will allow your ex to claim the child tax credit (up to $2000) but not EIC or head of household, those benefits always stay with the parent where the children live and can't be waived, transferred or shared.

You will max out your EIC at three children, 4 or more will not add anything.  But as I said above, your ex can't use a child to claim EIC.

Your child tax credit may be limited to less than $2000 per child because of your low income earned from working, so it could be that by releasing a child to your ex, your ex gains more than you lose.  But the only way to know is to test different combinations. 

[rose1965]

Hello, I had help filing my taxes on here and I thought I qualified for low income. I don't think we understood so we left it alone. It was just me filing. is there a way to amend something once its been sent out?

[JoannaB2]

If you transmitted, and the return was electronically accepted by the IRS and state and needed to add or dlelete information, you must amend your income taxes.  The amended return (Form 1040x for the IRS) can't be e-filed and must be mailed to the IRS.  You do the same on your state tax return,

[rose1965]

Hi, thank you for the info. I'm just really confused and all new at this.  All my working life, my father did my taxes for me. He passed last year. I was not working for a while, cause I was taking care of him. After he passed I ran out and got a PT job. My friend helped me file on line on turbotax. We saw a video about what low income means. Nothing seemed to apply to me. I have no children.  Another friend said that I did it all wrong and I am due low income rate. Well. He never wanted to help me out anyway or meet in person to do on the computer. I have a very low amount coming back to me as it is I claim 0. I guess I have to just take what i'm going to get. I don't know how to get back into the page to watch the video again.

[Opus 17]

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@rose1965 wrote:

Hi, thank you for the info. I'm just really confused and all new at this.  All my working life, my father did my taxes for me. He passed last year. I was not working for a while, cause I was taking care of him. After he passed I ran out and got a PT job. My friend helped me file on line on turbotax. We saw a video about what low income means. Nothing seemed to apply to me. I have no children.  Another friend said that I did it all wrong and I am due low income rate. Well. He never wanted to help me out anyway or meet in person to do on the computer. I have a very low amount coming back to me as it is I claim 0. I guess I have to just take what i'm going to get. I don't know how to get back into the page to watch the video again.

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https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc

You can read about the Earned Income Credit here.  For a single person with no children, you must be age 24 or older, have income less than $15,820, and the maximum credit amount is $538.  If you did qualify, Turbotax will have applied it to your tax return, but it may have only reduced your tax owed.  Also, the credit is on a sliding scale, if you earn near the bottom of the limit or near the top, the credit phases out.  Print your tax return and check form 1040, line 27, to see if there is an EIC amount there. 

[rose1965]

yes there is an amount. not the amount one of my friends said would be there just a low amount. I guess it is what it is. Maybe next year things will be different. I was debating going to an actual tax person instead of doing it on line. I just wonder if they sit there and use the same tax program?

[JohnB5677]

If you are questioning the amount of your refund you can go through and double check some of these things.

There are three factors that will determine the size of your refund (or what you owe).

1. The total amount of income that you have.
2. The amount you had withheld from your wages.
3. Whether you qualify for certain tax credits.

Your income determines the amount of tax you owe.  This not only includes your wages, but also any other type of income you may have had.  A small job that issued a 1099 MISC or NEC can result in significant taxes.  Based on criteria established by the IRS there are tables that determine the amount of tax that you owe.  Double check your income entries and make sure they are correct.

The amount you had withheld generally come from your W-2 income; however, taxes can be withheld from other forms of income.  If the taxes withheld is more than what you owe you will get a refund.  If not, you will owe money.  Again, double check your entries and be sure they are correct.

You can subtract Tax Credits from the amount of tax you owe.   Here are some common Credits:  

If you look on your tax return FORM 1040 you can check these entries.

• Line 27 Earned Income Credit
• Line 29 American Opportunity Credit (For College)
• Line 30 Recovery Rebate Credit

Compare your tax credits to what you had last year.  This is the most likely place for a large amount to be.

[Opus 17]

@rose1965 

if TurboTax computed the amount of earned income credit incorrectly, the IRS will automatically correct it for you. However, the earned income credit for single taxpayers with no children is very much smaller than the earned income credit for taxpayers with children.

[Hal_Al]

@jeffdnavarro  asked "Or is there a point at which more dependents doesn't mean more credit? I am debating on whether or not I should let my ex-spouse to claim more dependents since the income is much higher".

Yes, there is such a point and you have reached it. You should also be aware that there is a special rule in the case of divorced & separated (including never married) parents. When the non-custodial parent is claiming the child as a dependent/exemption/child tax credit; the custodial parent is still allowed to claim the same child for Earned Income Credit, Head of Household filing status, and day care credit*.

At $15K income, you only need to claim one child for full benefits (including the child tax credit). Let the ex claim the others for the child tax credit, while you still get to claim them for the EIC. 

For the 2020 tax year, he will even get the child portion of the stimulus/rebate credit, even though you already received it in 2020.  However, if you did not get the full child stimulus ($1100 for kids under 17), in 2020/early2021, then you will have to claim them, as dependents,  to get it on your 2020 return (or "make a deal" with the ex).

*This "splitting of the child" is not available to parents who lived together at any time during the last 6 months of the year; then only one of you can claim the child for any tax reasons. The tax benefits may not be split in any other manner.
Note in particular that the non-custodial parent can never claim the Earned Income Credit, Head of Household filing status or the day care credit, based on that child, even when the custodial parent has released the dependency to him.