Earned Income and Child Tax Credit Calculations in Proseries

[jesmithjr86]

I have made several attempts to get help from Proseries Help regarding how the Earned Income Credit and Child Tax Credits are calculated.  Wondering if there is someone here that can help guide me.on how Proseries calculates this.  I will communicate details if there is an expert that can help.  Thank you.  

[Just-Lisa-Now-]

Whats the problem you're having?  Maybe you can explain your situation and someone can walk through it with you.

EITC and CTC calculate automatically if the clients situation qualifies for it, you dont need to "do" anything extra to make it happen.

[TaxGuyBill]

If you to "Find Form" and type "EIC", you can open the "EIC Worksheet" that has the calculations.

Form 8812 shows the calculations for the Child Tax Credit.

If you have further questions, you'll need to post as many details as possible.

[jesmithjr86]

This is a repeat client for several years.  The earned income credit calculated as $1766 and child tax credit calculated as $213 as compared to last year $6000 earned income credit and $3000 child tax credit.  Income is less in 2023 then 2022 so that is why I am questioning this.  The earned income is from self employment only in 2023 as compared to having both W2/self employment income.  There does not seem to be an issue with the amount of income for the calculation. One child was taking college classes in 2022 and 20223 age 19 turned 20 in 2023 and another is a senior in high school but turned 18 in 2023. The student taking college classes did not get financial aid in 2023 because they filed the application late. I learned that she is considered disabled for work but selecting that indicator did not change the result of the credits. So it looks like there are only two eligible dependents for the earned income credit and child tax credit compared to 3 in 2022.  In my logic the refunds should be 1/3 less.  So that is the only thing different this year.  Without understanding the calculation and knowing if the the level of the credits changed 2022 to 2023 the result seems wrong. There is another child involved that is shared custody and they have a verbal agreement to alternate years to be claimed. The father pays child support.  I added this child to the return and no change to the credits.

[TaxGuyBill]

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@jesmithjr86 wrote:

Income is less in 2023 then 2022

So it looks like there are only two eligible dependents for the earned income credit and child tax credit compared to 3 in 2022. 

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Those are the two major factors. 

I didn't quite follow the kids.  Why are there only two children rather than three?  Is the third the one that the father is claiming?  Did the child live with your client and was the child a qualifying EIC child?

To see how income and the number of children affect EIC, look at the tables that start on page 27 of Publication 596.

https://www.irs.gov/pub/irs-pdf/p596.pdf#page=27

[Just-Lisa-Now-]

Holy giant block of text Batman!

I couldnt quite follow your entire scenario, I think you need to look at the 8812 and follow the math for the CTC/ODC credits and follow the math on the EIC worksheet to see how thats being calculated.

When you say you added a child and no change to the credits, did you mean no change to the refund , or no change to the credit showing on the 8812? (the credit is non-refundable, so it might not change the refund)

[jesmithjr86]

Sorry for the wordiness.  I added a child as a what if to see if it would have any impact on the credits and the refund.  That child should potentially be included if the mother follows through with their verbal agreement.

Then I learned that the oldest child talking college classes maybe considered disabled for working purposes.  They her doing that as a way giving her something to do socially. Selecting the disability indicator didn't change the result either.

[TaxGuyBill]

If all three kids (1) lived with her for over half of the year, (2) are full time students under age 24 and (3) did not provide over half of their own support"

• All three kids should be on her tax return for EIC purposes (look at Schedule EIC to see if all three kids are showing up there).
• If she did not let the father claim the one kid, all three kids would also be dependents (look at the dependent section of Form 1040 to verify they are showing up there).

If you tell us (1) her earned income for 2022, (2) her AGI for 2022, (3) her earned income for 2023 and (4) her AGI for 2023, we may be able to point you to why her credits have changed so much.

[Skylane]

Your narrative is a bit confusing.... rather than comparing 22 and 23 try just listing basic facts for this year

TP  -  status  age  ;  w2 income   - Sch C net income     custodial parent for child no 1,2..... 

Child no 1     age   college?   etc...

Child 2

Like @TaxGuyBill  says...pub 596 is your friend...  PS does an excellent job of calculating the credits if you get your facts straight and entered correctly. . 

[jesmithjr86]

First of all this may not matter but this is a blended family. The taxpayer and spouse have the same last name.  The 4 children on the return are the children of the spouse.  The children are 20, 18, 16, 12.  There is a 5th child that is a son of the taxpayer and has the same last name.  At this point that child was not included on the return for 2022 and so far is not included on the return for 2023 pending ironing out the filing between the tax payer and the biological mother.  They had a verbal agreement to alternate years to claim the client. This maybe a moot point.

I understand it is confusing so I am trying my best.  There are a couple different people responding so that is making it even more confusing for me.  I have never had such a dificulty filing a return before.

[jesmithjr86]

TP MFJ age 47

Spouse age 41

Business income - 4217

Income from housing subsidy for rent - 2413

Total income - 6630

Half SE - 298

AGI - 6332

Child 1 - 20 not working disabled in school not qualified for credit

Child 2 - 18 still in high school vocational technical not qualified for credit

Child 3 - 16

Child 4 - 12

When I look at EIC Worksheet it shows 2 children eligible

When I look at the 8812 form it shows 2 children eligible

When I look at the table in pub 596 is it based off AGI 6332 or Total Income 6630 or business income 4217

I do not find EIC of 1766 on this table

Also discovered the child tax credit is based off the EIC  as a %. Not sure which amount is being used to compare to the table for the figuring the amount of credit.

Help.  Why is this so difficult?  I thought this was designed to help low income families.

[TaxGuyBill]

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@jesmithjr86 wrote:

When I look at EIC Worksheet it shows 2 children eligible

I do not find EIC of 1766 on this table

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I'm not sure why the worksheet is only showing two children.  Is Schedule EIC showing three?

The program is correctly calculating EIC for 3+ children.  Their Earned income is $3919 ($4217 minus $298).  The chart shows $1,766 for 3+ children for income $3900-$3950.

In answer to your original question, their income is too low this year.  You said last year their income was higher and as you can see in the charts in Publication 596 that higher income results in higher EIC (up to a certain point, then it drops back down).

The same applies to the refundable portion of the Child Tax Credit.  If you look lines 18-20 of Form 8812, you'll see the calculation is limited due to the very low Earned Income.

It seems like everything is correct.

As a side note, are they receiving a large amount of nontaxable income or nontaxable other benefits?  I'm just wondering how they have a family of SEVEN with that extremely low income.

[sjrcpa]

When in doubt, get out a pencil and complete the worksheets yourself to check the computations. I also suspect the software is correct. If you don't know how the calculations work, there is no point in comparing this year to last year's refund when income, dependents, etc are different. Apples and oranges.

[jesmithjr86]

I have not sorted it all out yet but this exercise of paper of pencil has opened my eyes,  I have always trusted the software, I just never understand the lower your income the lower the credits are.  That is illogical to me but it is what it is  Thank you for your help.