Paycheck stubs can be confusing. If you’re only perusing them to see how much money is landing in your checking account on payday, you can find that information fairly easily. However, some workers like to monitor their earnings throughout the year, including information that can help them prepare for tax season. If you aren’t having enough in taxes taken out throughout the year, for instance, you may be hit with a big surprise in April. Fortunately, with a little calculating, you can watch your earnings throughout the year and make sure you’re setting enough aside. But this means keeping in mind any credits that count in your favor when you file, including the earned income tax credit.
Earned Income Credit Qualifications
Not everyone qualifies for the earned income tax credit, which is designed to offer relief to low- to moderate-income families. Your adjusted gross income must be below a designated amount, which is on a sliding scale based on how many children you have. Only earned income counts toward this, which means if you receive payments for things like child support, they won’t count. If you are married filing jointly with no children, for instance, your combined adjusted gross income can’t exceed $20,950. For couples with three or more children, though, that maximum jumps up to $54,884.
Amount of Credit
With the 2018 tax law changes, the maximum credit a couple can earn is $6,431. This is a slight increase from the previous maximum of $6,269. To get this amount, you’ll need to be married filing jointly and have three or more qualifying children. You’ll get $5,716 if you have two qualifying children, $3,461 with one and $519 if you have no children.
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Determining Earned Income Tax Credit
There’s nothing on your paycheck that will state, specifically, whether you’ll earn a tax credit on your income during the current tax year. However, you can begin to calculate your 2018 credit by taking a look at your take-home pay, as well as assessing your living situation. Your number of children and filing status won’t change from one year to the next, but your gross earned income may. Say, for instance, you’re single with two children. Your take-home pay can’t exceed $45,802 for the year in order to qualify for the credit. If you’re paid biweekly, you simply divide $45,802 by 26, which is the number of biweekly pay periods each year, to get $1,762. As long as the number next to the line reading “Gross Earnings” stays below $1,762 every two weeks, you’re good. If you’re paid monthly, you would complete the same calculation, but divide $45,802 by 12.
Using Online Calculators
If you aren’t a fan of math, there are plenty of online calculators to help you determine what your earned income tax credit will be. During tax season, the IRS provides an earned income tax credit assistant, which uses your filing status, as well as the age and residency of your children to determine whether you’re eligible. There are also third-party calculators that are available ahead of the IRS’s version that can help. At tax time, if you qualify, you’ll simply attach Schedule EIC to Form 1040 or Form 1040A to apply the credit to your taxes.