Question & Answer: Determine the total allowable 2015 earned income credit in each of the following situations:…..

Determine the total allowable 2015 earned income credit in each of the following situations:

If an amount is zero, enter “0”.

a.	Judy is single and earns $5,500 in salary for the year. In addition, she receives $2,300 in unemployment compensation during the year.	$
b.	Monica is a single parent with one dependent child. She earns $12,500 from her job as a taxicab driver. She also receives $4,700 in child support from her ex-husband.	$
c.	Paul and Yvonne are married and have three dependent children. Their earned income is $21,300, and they receive $3,500 in interest income from their savings account. Assume the taxpayer files a joint return.	$
d.	Hattie is married to Herbert, and they have two dependent children. During February, Herbert leaves and hasn’t been seen or heard from since. Hattie earns $16,400 from her job. During January and February, Herbert earned $4,800, but Hattie has no idea how much he earned for the entire year. Assume the taxpayer files a joint return.

Expert Answer

a) The unemployment compensation of $2300 received by Judy is taxable. Now her AGI (5500+2300) $7800 is greater than earned income and must be used in credit phase out.So EIC is $419

b) Monica receives $4700 from her ex husband which is not taxable. So Monika earned income and AGI are same $12500. So her Earned Income credit is: $3373

c) Yvonne and Paul do not qualify for earned income credit as their portfolio income exceeds $3400 for year 2016.

d) The taxpayers who are married are required to file joint return in order to claim Earned Income credit. Now in this situation Hattie can elect to file as head of household to get this credit. Because it is allowed for an abandoned spouce to file as Head of household. Hattie will not be responsible to pay taxes on Herbert income. So earned income and AGI for Hattie is $16400 and he has also two qualifying child so earned income credit is $5572

Use Earned Income credit table in the Appendix A to chapter no 8.

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