Can state tax refund for 2020 tax year received after filing self-prepared itemized tax returns in 2023 count as Earned Income for determining EITC and ACTC eligibility?

Forum|Forum|1 year ago
May 3, 2024
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In 2023, I self-prepared and filed my 2020 tax year return, where I itemized deductions and deducted state and local taxes and then received a state tax refund. For 2023 tax year return, which I am working on right now, can I include the state tax refund, as Earned Income (EI), in order to meet the minimum EI eligibility requirements for Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC), considering that the income meets the definition of Earned Income here https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income-and-earned-income-tax-credit-eitc-tables, where I worked for myself by self-preparing the tax return to earn that income as a refund from the state? If so, TurboTax Home and Business 2023 does not let me count that as Earned Income and because of that I'm missing out on EITC and ACTC, as I don't have any other earned income for 2023. Can Turbo Tax software please be updated to include State and Local Tax Refunds to be counted as part of Earned Income for this scenario?

TurboTax Online

xmasbaby0

No. A state or local income tax refund is not "earned" income. In fact, if you itemized deductions the previous tax year, a state or local refund is considered to be taxable income. But you did not "earn" the income by working---preparing your own tax return is not "work" that counts for getting earned income credit or the child tax credit.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**

neelay_dasAuthor

Thanks for your response. Legally, I see that self-preparation of tax returns matches the description of work done for myself and per IRS definition of earned income any income earned as a result of work done for myself counts as earned income. Is there precedent you are aware of where IRS has rejected accounting such income as earned income?

xmasbaby0

You are confused. If you were self-employed you can deduct the cost of tax preparation as a business expense on a Schedule C where you enter your business expenses. Using do-it-yourself- tax software to prepare your own tax return is not "work" for which you are being paid and is not earned income for which you can get EIC.