Answer:
To calculate the Earned Income Credit (EIC), we need to use the EIC formula. The formula takes into account the earned income and the number of qualifying children. In this case, Chris and Sarah have three qualifying children and an earned income of $27,500.
First, we need to determine the maximum amount of credit they can receive based on their earned income and the number of qualifying children. For tax year 2021, the maximum credit amounts are as follows:
- No qualifying children: $543
- 1 qualifying child: $3,618
- 2 qualifying children: $5,980
- 3 or more qualifying children: $6,728
Since Chris and Sarah have three qualifying children, the maximum credit amount they can receive is $6,728.
Next, we calculate their earned income percentage. The earned income percentage is based on their earned income and is used to determine the credit amount. For tax year 2021, the earned income percentages are as follows:
- No qualifying children: 7.65%
- 1 qualifying child: 15.98%
- 2 qualifying children: 15.98%
- 3 or more qualifying children: 15.98%
Since Chris and Sarah have three qualifying children, their earned income percentage is 15.98%.
Finally, we multiply their earned income by the earned income percentage to calculate their EIC:
EIC = Earned Income * Earned Income Percentage
EIC = $27,500 * 15.98%
EIC = $4,399.50
Therefore, Chris and Sarah's EIC would be $4,399.50.
Explanation: