Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Begging for the Earned Income Tax Credit

I recently ran across a 1999 tax court case that I thought was kind of humorous. Well I guess humorous if you do taxes for a living. Even though it is on the older side, it has some principles that can be learned for the earned income tax credit.

The tax court case is Miguel A Bauta v. Commissioner. The taxpayer Miguel Bauta was really trying to be creative to score some extra money via the earned income tax credit. Mr. Bauta was incarcerated during the years 1996 and 1997. He had no income during this time; however he received money from family and friends. He filed tax returns with his profession listed as “beggar.” He reported this amount as income and then claimed the earned income tax credit.

Sounds like a crafty idea right? Well, the IRS didn’t like it, and in the end, his claim to have earned the money as a beggar didn’t hold up in tax court. The court determined that the money received from family and friends did not constitute as earned income. The Memorandum Opinion states “the money petitioner received from begging does not meet the definition of earned income … Rather, the money petitioner received from his family and friends was received as a gift.”

In case the title pulled you in and you really are begging for the earned income tax credit, here are some general guidelines to qualify for the tax credit.

  • You must have earned income (think wages, salaries, tips, net earnings from self-employment).
  • Your income must be under a certain threshold. This threshold varies based on how many kids you have and what filing status you use. For 2017, the threshold varies from Single with no kids ($15,010) to Married Filing Jointly with three or more kids ($53,930). You can find a complete chart on IRS.gov.
  • You must not have investment income over $3,450 (the amount changes a little every year, but this is the 2017 amount).
  • You must not file a tax return as Married Filing Separately.
  • You must not be a qualifying child of another person.

These are just some of the basic requirements for the earned income tax credit. There are a lot of quirks in qualifying, such as, if you file as Single with no kids you need to be at least 25, but under 65 years old. If I went through all the details, it would take quite some time. Just for an idea, the quick reference guide I have in front of me covers it over 2 pages. And that’s just a quick reference.

Richard Christensen