Purpose of Earned Income Credit

Purpose of Earned Income Credit

Purpose of Earned Income Credit

One of the limits on making deductible contributions to a registered retirement savings plan (RRSP) is your “earned income” for the previous taxation year. Basically, the calculation of your contribution limit for the current year begins with the lower of the RRSP limit defined for the year ($ 24,930 for 2015) and 18% of your earned income for the previous year. Unused RRSP deductions from previous years are added to your current year’s limit. If you participate in a registered pension plan, your RRSP limit will be reduced by your “pension adjustment” for the previous year.

In most cases, there is little you can do to maximize your earned income for these purposes. However, if you own a company of which you are an employee, you have some flexibility in this regard. You can decide on any combination of dividends or salary that will be paid to you in a given year. Salary will be income earned for RRSP purposes, while dividends will not be. Of course, you may have other reasons to choose dividends, and the RRSP cap rule won’t be the only factor to consider. The Earned Income Tax Credit (EIC or EITC) is a refundable tax credit for low- and moderate-income workers; see the eic table chart here.

Taxpayers can declare their 2019 income online as of Monday April 20. The tele-declaration service is available on the tax website and from the official application. Due to the Covid-19 crisis, the original deadline for filing your tax return2020 has been extended to all departments. Henceforth, the deadline for filing the tax return is fixed at Thursday June 4, 11.59 p.m. in zone 1 (departments from 01 to 19 and non-residents), to Monday June 8 11.59 p.m. in zone 2 (departments from 20 at 54) and at 11.59 p.m. on Thursday 11 June in zone 3 (55 at 974/976). The deadline for taxpayers who continue to file paper tax returns is Friday, June 12, 2020, 11.59 p.m., the postmark being taken. This is a minority, online reporting being mandatory for all registrants. The remote declaration of income service will be available from Monday, April 20, 2020. As a reminder, from 2020, the declaration of income becomes optional for some taxpayers. To know more, the tax returns.

One year after the introduction of the withholding tax, which replaced the collection on tax advice on January 1, 2019 for the majority of taxpayers, it is the turn of the income tax scale to be turned upside down from January 2020. The objective of this new upheaval? Implement the 5 billion euro income tax cut for nearly 17 million tax households. Or an average gain of 300 euros per household, figures the executive. Find out in detail the new progressive scale as it appears in the finance bill for 2020, for application from January.

How to calculate your income tax?

Step 1: divide your taxable income by the number of shares

Step 2: Apply each tax rate to each tranche

Step 3: Add the taxes and multiply the total by the number of shares

To calculate the amount of your gross tax, you must first divide your taxable net income by the number of family quotient shares to which you are entitled. The latter depends on your family situation (single, married, PACS, divorced, separated widower or widower) and the number of people you may have dependent on (minor children, adults, and disabled). Then, the 2020 income tax scale (detailed below) should be applied to the result of this division. Finally, you must add the tax amounts obtained by tranche and multiply the total by the number of parts. Take the example of a single person without dependent children who received a taxable net income of 35,000 euros. Under the rules for calculating the number of shares, the latter is only entitled to one. Here are the steps to follow to calculate your income tax:

The total amount of gross tax 2020 for a net taxable income of 35,000 euros received by a single person without dependent children therefore amounts to 4,112 euros, against 4,700 before the application of the tax reduction on income in 2020. That is to say a gain of 588 euros.

Income tax simulation

The Directorate General of Public Finances (DGFiP) provides you with two online tax simulation tools. Which one to choose? If, in addition to wages , pensions or pensions, property income , gains from the transfer of securities, social rights and similar securities, you must declare income from commercial, liberal, agricultural activity, investments in the overseas departments sea ​​or global deficits (professional deficits), prefer the ” complete model “. Conversely, if you only have basic income and expenses to declare, opt for the simplified version. So that the tax simulator works, the fields must be filled in euros, without the cents. The tax simulator works for the calculation of the 2019 income tax for 2018. With the entry into force of the withholding tax on income tax on January 1, 2019, the tax administration now offers a direct debit simulator, allowing the taxpayer to obtain a simulation of the monthly amount deducted by his employer.

You May Also Like

About the Author: Barry Lachey

Barry Lachey is a Professional Editor at Zobuz. Previously He has also worked for Moxly Sports and Network Resources "Joe Joe." he is a graduate of the Kings College at the University of Thames Valley London. You can reach Barry via email or by phone.