Don't Mess With Taxes

What would you do with an extra $2,504?

That's the average amount received by taxpayers who claimed the Earned Income Tax Credit (EITC) in 2019. Overall, the Internal Revenue Service says that across the country last year, 25 million taxpayers received more than $61 billion from this tax break for lower-and middle-income workers.

Every tax year, however, folks who qualify for the Earned Income Tax Credit don't claim it.

Many don't know about the tax break. Others don't realize that changes in their marital, parental or financial status means they now qualify.

That's why for more than a decade, the IRS has celebrated an EITC Awareness Day. Today, Jan. 31, is the 14th such commemoration, during which Uncle Sam focuses on getting the word out about the EITC, who qualifies for it and how to claim it.

Here's an overview on this EITC Awareness Day 2020.

How the EITC helps: The EITC first appeared in the tax code in 1975 as part of that year's Tax Reduction Act. It was an outgrowth of the 1960s-era War on Poverty, creating a way for lower-paid workers to offset the Social Security taxes that take a relatively big bite out of their smaller paychecks.

The EITC is particularly valuable because it's a tax credit. Unlike tax deductions that reduce the amount of money that's subject to tax, credits reduce your actual tax liability dollar-for-dollar.

Even better, the EITC is a refundable credit. As that description indicates, it goes beyond just wiping out any tax you owe. It can create a refund for EITC eligible filers.

That got your interest, didn't it?

What the EITC is worth: OK, just how much help in cutting your tax bill can the EITC provide?

Like most things tax, the answer is "it depends."

The amount of the credit is determined by your filing status, your family size and your income.

For the 2019 tax year, whose returns we now are submitting during the filing season that began this week, the EITC could provide eligible families with three or more qualifying children a credit of up to $6,557.

The maximum EITC for qualifying filers with two or more qualifying children is $5,828. It's $3,526 with one qualifying child.

Even folks without kids could get some added EITC money. The amount in these cases could be as much as $529.

Those amounts also are adjusted annually for inflation, meaning they are bumped up a bit for the 2020 tax year.

How income affects the EITC: The key word in this tax break's name is earned.

You must make money from work to qualify for the EITC. But make too much and you're ineligible.

You can get a quick idea if you qualify for the 2019 EITC from the earnings table below.

Other EITC qualifying factors: There are some basic EITC eligibility requirements that a taxpayer must meet to file for this benefit. The key ones are shown in the IRS graphic below.

But every taxpayer's situation is different, so that means specific circumstances could affect EITC eligibility.

Take, for example, a member of the military. Combat pay normally is exempt from tax. That generally is a good thing, since not including it as part of adjusted gross income (AGI) means you have less taxable income.

But with the EITC, that usually nonincludable money could mean a bigger tax credit. So under a special rule, those who receive combat pay can choose to count it as taxable income for figuring the amount of EITC.

Armed forces taxpayers will need to run your taxes both with and without the combat pay/EITC factor to see which works better for them.

There are also special rules for those with certain types of disability income and members of the clergy. 

Homeless workers may also encounter unique challenges to claim the EITC. Any place a worker regularly lives counts as a home, including shelters.

And when a child can qualify as a tax dependent for more than one person, only one of those filers can use that child to claim the EITC.

All these myriad factors is why the IRS recommends that folks who earned $55,952 or less use the agency's online EITC Assistant to find out if they qualify.

This online tool not only helps you determine whether you qualify based on your tax specifics, but also estimates the amount of the credit you could get.

And if in using the online tool you find that you aren't eligible, it explains why.

Other EITC help options: The EITC is complex and many special rules apply, so the EITC Assistant is a good starting place if you think you qualify for this tax break.

Tax software also is helpful. If you qualify for the EITC, you also are under the adjusted gross income earnings limit of $69,000 for using the IRS' Free File option. The no-cost tax software programs available there can help EITC taxpayers complete the credit worksheets and forms.

If you're more comfortable with face-to-face tax help, there's always the option to go with a tax professional. However, if your tax preparer search doesn't turn up one that meets your needs or your budget, check out a Volunteer Income Tax Assistance (VITA) or Tax Counselling for the Elderly (TCE) program near you.

These tax assistance operations are staffed by IRS-trained volunteers to help lower-income and elderly taxpayers prepare and file their taxes for free or low fees.

There are more than 12,000 VITA and TCE locations nationwide. Most are open from early February to mid-April. Some sites offer help on a first-come-first-served basis, while others require an appointment.

To find VITA and TCE locations in your area, visit the IRS' online Free Tax Return Preparation Web page or call toll-free (800) 906-9887.

And if you'd just like a bit more online reading material, check out the IRS' EITC webpage, IRS Publication 596 and today's #EITCchat on Twitter, where some of the social media discussion also is in Spanish.

The EITC delay: Finally, while the EITC could get you a substantially larger tax refund, be ready to wait for it.

The IRS is legally required to hold EITC-related refunds until mid-February. This delay was added as part of the Protecting Americans from Tax Hikes, or PATH, Act as a way, in part, to help stop tax identity theft and review EITC and Additional Child Tax Credit (ACTC) claims to ensure they are legitimate and correct.

And realistically, even if you get your refund directly deposited, when there's an EITC or ACTC claim on your Form 1040, your already delay-mandated refund likely won't show up in your bank account until the end of February.

So be aware of and account for this added time when you file.

But also remember that that while claiming the EITC does take more work and means not get your refund as soon as you'd like, it's generally worth it.

If you qualify but don't claim the EITC, you're likely leaving hundreds or possibly thousands of dollars on the tax table. When we're talking those amounts of money, a bit of hassle is worth it.

You also might find these items of interest:

• 6 special situations where the EITC could help
• Tax help to take care of aging (and injury prone) parents
• Taxpayer Advocate suggests 3 ways to improve the EITC

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