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Income Tax Scam Alert

The Earned Income Credit (EIC) has great intensions (as most tax credits do!). Its original intention was to help working individuals who are in a lower tax bracket but not making enough money to make ends meet. Before we dig deeper here, we must acknowledge that a tax credit is not the same thing as a tax deduction; a tax credit is simply cash.

But, if there is no "earned income," there is no way to receive the tax credit. Unfortunately, a number of individuals attempted to skirt around the requirement to show "earned income" on tax returns. In their desire to be able to participate in the tax credit, many tax preparers took to creating the correct amount of income their clients would need to collect the maximum EIC. They would show that their clients were self-employed and earning just the right amount of income to receive an EIC.

The problem with this scam however, is that it can cost our clients their Social Security benefits. In order to prove an individual's disability, Binder and BinderÒ must prove to the government that our clients are unable to work. However, if a tax preparer has created a job in order to get their client a tax credit, they are essentially telling the government that their client is able to work. While it may provide a short-term benefit, the end result makes individuals unqualified to receive Social Security Disability payments.

The figures below show the possible EIC some individuals were eligible for the previous tax season. The amounts, while decent and most definitely needed by the majority of us in this economy, often do not compare to the amount an individual can receive through their disability, especially when back payments are factored into the equation. We want to make sure you are all aware of the potential dangers of this tax scam. If you're a client and have any questions or concerns about the income tax credit scan, just leave a message in the comment section and we'll do our best to answer it for you!

For the 2010 tax year, the EIC breakdown is listed below.  Earned Income and adjusted gross income (AGI) must each have been less than:

·      $43,352 ($48,362 married filing jointly) with three or more qualifying children

·      $40,363 ($45,373 married filing jointly) with two qualifying children

·      $35,535 ($40,545 married filing jointly) with one qualifying child

·      $13,460 ($18,470 married filing jointly) with no qualifying children

·      Tax Year 2010 maximum credit:

·      $5,666 with three or more qualifying children

·      $5,036 with two qualifying children

·      $3,050 with one qualifying child

·      $457 with no qualifying children

2 Comments

Good question, Marcus!

A common question that we hear from many of our clients at Binder & Binder® is "Is Social Security Disability taxable income?" Unfortunately, just like when you were filing for Social Security Disability, the answer is not a simple yes or no.

If you are approved for Social Security Disability, your benefits may be taxable, especially if you have other sources of income besides your disability payment, or if your spouse earns a substantial income. The good news is that Social Security Disability taxes are generally very low, if anything at all.

Read more about it here: http://www.binderandbinder.com/Social-Security-Disability/Social-Security-Disability-Taxable.shtml

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