Under the Disaster Tax Relief Act of 2017, there are special rules for certain qualified individuals to determine their 2017 federal income tax return earned income tax credit and/or the child tax credit based on their 2016 earned income. Primarily this provision impacts taxpayers that reside in Florida, Georgia, and Texas, but may also impact certain residents of Louisiana, South Carolina, and Puerto Rico. This provision applies when the taxpayer’s earned income in 2016 was greater than their 2017 earned income. If the taxpayer’s earned income in 2017 is greater than their earned income in 2016, this special provision does not apply.
To be eligible for this special provision the taxpayer or the spouse must be a “Qualified individual”, which is a person whose principal place of abode was in the Hurricane Harvey, Irma, or Maria disaster zone on the date of each applicable hurricane or the individual lived in the disaster area (but outside the disaster zone) and was displaced from their principal place of abode because of the hurricane. On a joint return, if either the taxpayer or the spouse can be deemed to be a qualified individual, they may utilize this special rule.
To elect this special provision for determining Earned Income Credit and/or Child Tax Credit, from the main menu of the Tax Return (Form 1040) select:
- Personal Information
- Other Categories
- Disaster Designation
- Double-click the appropriate designation of Hurricane Harvey, Hurricane Irma, or Hurricane Maria.
Once the Hurricane designation has been selected, certain menus will be become available to the user that are associated with the Disaster Tax Relief Act.
To calculate Earned Income Credit and/or Earned Income Credit and Child Tax Credit based on their 2016 Earned Income, from the main menu of the Tax Return (Form 1040) select:
- Payments, Estimates & EIC
- Earned Income Credit
- Double-click Complete Schedule EIC
- Select Prior Year Earned Income for Hurricane Victims and enter the earned income from the taxpayer’s 2016 tax return
- Select Determine if Prior Year Earned Income is Best
If the taxpayer was not eligible for Earned Income Credit and is only seeking to determine the Child Tax Credit based on their 2016 Earned Income, from the Main Menu of the Tax Return, (Form 1040):
- Credits Menu
- Child Tax Credit
- Double-click Complete Schedule EIC
- Select Prior Year Earned Income for Hurricane Victims and enter the earned income from the taxpayer’s 2016 tax return
- Select Determine if Prior Year Earned Income is Best
NOTE This is a guide on entering the special rules for certain qualified individuals to determine their 2017 federal income tax return earned income tax credit and/or the child tax credit based on their 2016 earned income into the Keystone Tax Solutions Pro program. This is not intended as tax advice.