earned income credit

[Goldy1]

When looking at how much the credit would be based on what you earn, is this before adding to a 401K?

I mean, can I put money into a 401K and then qualify based on earnings after putting money into the 401K?

[swanson719]

That's tough. You should be able to since the 401K contribution will reduce your taxable income. FYI, this is the last year the EIC is $1,000. It drops to $500 for 2011.

[SnoopyCool]

I know you can do that with an IRA.

[MonkeyMama]

My gut feeling was no, but I looked it up, and it looks like you can fund 401ks and IRAs to reduce your income for the EIC. Interesting.

That said, you may also qualify for the savers credit. That one is easier to get than the EIC - can have a higher income.

If you have investment income of more than $3k-ish, you can't claim the EIC. This will prevent people with a lot of taxable investments from taking the credit in a low income year. There's probably a 100 other "buts..." The EIC is not exactly easy to figure out.

[Goldy1]

thanks fellow savers...actually I believe the credit I was really meaning to ask about was the child tax credit though. This is our first year with earned income and a child(he is one) haha. I was wondering if we put more into the 401K would it reduce the income to determine the credit for having a child. I read in a magazine that the less you make, the higher the child tax credit is. I dont' believe our family is low income enough for a EIC actually, but have no idea. We never got it before.

[MonkeyMama]

Yes - the same strategy would work for the child tax credit. If you are married and your Adjusted Gross Income is $110k or less, you would get the full credit.