The correct answer is not among the options provided. The correct answer should be $5,450.
To calculate the Earned Income Credit (EIC), you need to use the EIC formula. The EIC formula takes into account the number of qualifying children, the earned income, and the filing status.
In this case, Chris and Sarah are married with three qualifying children, and their earned income is $27,500. To calculate their EIC, we will use the following steps:
1. Determine the filing status: Since Chris and Sarah are married, they will file as Married Filing Jointly.
2. Determine the number of qualifying children: Chris and Sarah have three qualifying children.
3. Determine the earned income: Chris and Sarah's earned income is $27,500.
4. Use the EIC table: The EIC table provides the maximum credit based on filing status, earned income, and number of qualifying children. For the 2021 tax year, the maximum credit for a married couple filing jointly with three qualifying children is $6,728.
5. Calculate the phase-out amount: The EIC gradually phases out as earned income increases. To calculate the phase-out amount, subtract the earned income from the phase-out threshold. For 2021, the phase-out threshold for a married couple filing jointly with three qualifying children is $21,430.
Phase-out amount = Earned income - Phase-out threshold
Phase-out amount = $27,500 - $21,430
Phase-out amount = $6,070
6. Calculate the credit amount: The credit amount is determined by multiplying the phase-out amount by the phase-out rate. For 2021, the phase-out rate for a married couple filing jointly with three qualifying children is 21.06%.
Credit amount = Phase-out amount x Phase-out rate
Credit amount = $6,070 x 0.2106
Credit amount = $1,278.02
7. Subtract the credit amount from the maximum credit: Finally, subtract the credit amount from the maximum credit to get the final EIC.
EIC = Maximum credit - Credit amount
EIC = $6,728 - $1,278.02
EIC ≈ $5,449.98
Rounding the final answer to the nearest dollar gives us $5,450.
Therefore, the correct answer is not among the options provided. The correct answer should be $5,450.