Q: In an earlier column you mentioned there were some significant changes to the 2022 version of the Earned Income Tax Credit (EITC).  Can you summarize the most important changes?

— D.B.K., email

The EITC is one of the most generous tax credits while also being one of the most complex to compute.  Start by using the IRS online tool — the "EITC Qualification Assistant" — found at www.irs.gov/EITC. It takes you through several screens looking at filing status, income and the number of qualifying children and provides a quick overview of eligibility.

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Given the EITC's complexity, the 2022 update of IRS Publication 596, "The Earned Income Credit,"will help as you prepare this part of your return. Publication 596 includes the EIC table, which "cuts to the chase scene" and provides a tax-free "increase in pay" for eligible taxpayers. For example, a Married Filing Jointly return with $30,000 of worksheet income will generate an EIC of $3,132 (1 qualifying child); $5,371 (2 qualifying children) or $6,142 (3 or more qualifying children). Assuming 2,000 hours of work per year that comes to $1.57, $2.69 and $3.07 per hour.

Three significant EITC changes for 2022 include:

• Maximum amount of income a taxpayer can earn. The income ceiling depends on the number of qualified children (e.g., from $22,610 if married filing jointly with no qualifying children to $59,187 on a MFJ return with 3 or more qualifying children)

• Age requirements for taxpayers without a qualifying child are more stringent. In 2021, a taxpayer without a qualifying child could be 19 and report an EITC. For 2022 filings, the age has reverted to a minimum age of 25 and under 65.

• The investment income earnings ceiling (i.e., maximum investment income that will still allow you to qualify for the credit) has moved up to $10,300.

Publication 596 provides a very helpful overview of the credit in Table 1, page 2 — "Earned Income Credit in a Nutshell" — as well as a useful eligibility "checklist" on page 26.

The EITC is (as pointed out earlier) rigorous. It is also refundable! Put differently, it is not limited to the amount of tax owed, thus the EITC can generate a refund on its own.

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Ken & Klee's Tax Notebook — For the "do it yourself" folks, we recommend exploring the IRS Free File program.  Taxpayers who make less than $73,000 can file their federal tax return at no cost. And the program also offers free filing for state tax returns for more than 20 states, including Indiana and Michigan.

An earlier column indicated that the vast majority of IRS inquiries/exams of individuals come from "desk" or "correspondence" audits, largely handled by mailings between the taxpayer and the IRS, which eliminates having to visit an IRS office and working with an agent. Last week, the IRS suggested that if you end up facing any of nine specific correspondence audits, taxpayers receiving these notices now have the option of submitting their documentation online through irs.gov. This new secure step will allow taxpayers and/or their tax professional to electronically upload documents and reduce time and effort resolving tax issues. The notices covered by this new effort include several EITC notices, information requested by the IRS related to a refund, the Child Tax Credit, the Premium Tax Credit and notices related to combat zone status.

Rick Klee served as the tax director at the University of Notre Dame from 1998 through August 2019. A retired CPA, Klee is a graduate of Notre Dame. You can contact him at rklee@nd.edu.

Ken Milani is a professor of accountancy at Notre Dame where he served as the faculty coordinator of the Notre Dame Tax Assistance Program. Contact him at milani.1@nd.edu.

E-mail questions to either.

This article originally appeared on South Bend Tribune: Changes to the Earned Income Tax Credit