Katrina related EIC

[danielle]

This concerns the Katrina related legislation just passed. Apparently taxpayer who lives in core disaster area can use 2004 income (instead of 2005) for purposes of computing the EIC.

What if taxpayer did not work this year at all and, therefore, no income tax return required? Would you file a return for this taxpayer using 0 income to determine taxable income and 2004 income for the EIC.

[Bees Knees]

Yes. That is exactly the intent of the legislation. Many lost their jobs. With little or no income, the EIC would have normally been lower. So the new law allows them to pay tax on 2005 income while at the same time claim an EIC based on 2004 income.

[Snaggletooth]

Optional?

I also read this section in the TAXBOOK, and it went "over my head..."

Does this mean that the taxpayer gets to choose his income for EIC purposes between his 2004 AGI, and 2005 AGI and pick whichever one results in the greater EIC?

Thanks in advance...

[BOB W]

election

It looks like either one can be used because using 2004 is based on "electing" to use 2004 AGI.

[danielle]

Thanks. I wasn't sure if taxpayer had to first be eligible for the EIC (no income would mean no eligibility) and then gets to pick which year to use.

Another scenario would be if taxpayer was eligible last year but this year's income is too high to qualify for EIC. Can he still choose to use last year's income to compute the EIC or would he not be eligible for EIC due to too high an income.

[Bees Knees]

According to the update on the new law,

http://www.thetaxbook.com/updates_view.asp?ID=19

it says: “if the earned income for the tax year that includes August 25, 2005 is less than the earned income for the preceding tax year, the taxpayer can elect to calculate the Child Tax Credit and the Earned Income Credit by substituting:
• The earned income for the preceding taxable year, for
• The earned income for the taxable year which includes August 25, 2005.”

[BOB W]

August 25...

It appears that in order to elect EIC for 2004 a T/P must have been employed on August 25. ??????

I know this sounds stupid for me to pick this issue up but it never dawned on me and thought someone else may be as dumb as me.

[Bees Knees]

It appears that in order to elect EIC for 2004 a T/P must have been employed on August 25. ??????

No, it doesn't say that. It says earned income for the tax year that includes August 25, 2005....

They always have to write laws that are more complicated than need by - for the handful of individuals in this country that have elected tax years other than calendar years.

[BOB W]

Thanks .......

...... for the clarifation... ugg.. fiscal years, who would of thought????? Not me......