The Earned Income Tax Credit, or EITC, is one of the most beneficial tax breaks for lower- and moderate-income workers. It's also one of the most under-claimed.
The reasons are many, starting with its complexity.
You have to work to be able to claim the EITC. But if you make too much money, you're ineligible. Your marital status comes in the calculation of the final credit, as does the size of your family. And many single people ignore the EITC because they think it's only available to filers with dependent children.
"This is an extremely important tax credit that helps millions of hard-working people every year," said Internal Revenue Service Acting Commissioner Doug O'Donnell, who noted some of those reasons as he announced the tax agency's annual Earned Income Tax Credit Awareness Day on Friday, Jan. 27.
The IRS administers the EITC, which Congress originally approved in 1975. It was developed in part to offset the burden of Social Security taxes on lower earners and provide an incentive to work. The goal, as stated for that first EITC Day, is to not just to help eligible people get by, but to help them get ahead.
Americans who earned $59,187 or less can claim the EITC on their 2022 tax returns. It could provide qualifying filers immediate maximum tax relief ranging from $560 to $6,935.
Annual outreach event: Since 2007, the IRS has held the annual EITC event — in conjunction with the Taxpayer Advocate Service, state tax officials, tax professionals, and community advocacy groups — to get the word out to those who qualify, but don't claim, the tax break.
Those missing filers include the estimated one-third of the EITC eligible population that turns over each year. Many in this annually new EITC eligible group don't realize they have, due to life changes, now can claim the tax break.
"In particular, people who have experienced a major life change in the past year — in their job, marital status, a new child or other factors — may qualify for the first time," said O'Donnell. "The IRS urges people to carefully to review this important credit; we don't want people to miss out."
Millions missing out: Last year, 31 million eligible U.S. workers and families nationwide didn't miss out. They received about $64 billion in EITC claims, with the average credit being $2,043.
Still, says the IRS, around 20 percent of EITC eligible taxpayers do not claim it. Those missing out include those —
- Living in non-traditional homes, such as a grandparent raising a grandchild;
- Whose earnings declined or whose marital or parental status changed;
- Without children;
- With limited English skills;
- Who are veterans;
- Living in rural areas;
- Who are Native Americans; and
- With earnings below the filing requirement.
2022 changes: During the COVID-19 pandemic, the EITC benefit was increased for single taxpayers. That and other enhancements ended with the 2021 tax year, but the tax credit itself is still available. And valuable.
As a credit, it's a dollar-for-dollar offset of tax owed. It's also a refundable credit, meaning that if there's any left after zeroing out your tax liability, you get the excess as a tax refund.
For 2022 filings, the maximum EITC for taxpayers with no dependents is $560. The top EITC amounts for families are —
- $3,733 for filers with one qualifying child;
- $6,164 for those with two qualifying children; and
- $6,935 for families with three or more qualifying children.
To get that, or any EITC amount, on their 2022 tax returns, working taxpayers' income must not exceed the following limits —
- $16,480 ($22,610 if married filing jointly, or MFJ) with no qualifying children;
- $43,492 ($49,622 for MFJ filers) with one qualifying child;
- $49,399 ($55,529 for MFJ taxpayers) with two qualifying children;
- $53,057 ($59,187 for MFJ filers) with three or more qualifying children.
In addition, EITC claimants cannot have investment income that's more than $10,300.
Those are a lot of EITC numbers, but for this weekend's By the Numbers pick, I'm going with the four maximum amounts — from $650 to $3,733 to $6,164 to $6,935 — that are available to qualifying filers this year.
Other eligibility rules: In addition to earnings limits, taxpayers must be between the ages of 25 and 64 to claim the EITC.
All children used in claiming an EITC amount much have valid Social Security numbers.
Married but separated spouses who do not file a joint return may qualify to claim EITC if they meet certain requirements. This applies if they —
- did not live with their spouse during the last six months of the year, or if they have a separation agreement or decree; and
- lived with their qualifying child or children for more than one-half of the year.
Checking eligibility, getting filing help: All the qualification requirements, explanations, and figures in this post are a good example of why too many people simply throw up their hands when it comes to EITC claims.
But please, pull your hands down and use them to click over to the IRS' EITC Assistant. This online too can help you relatively quickly check your EITC eligibility.
If you find you do qualify and want more help in claiming the EITC, you have other options.
You always can find a reputable tax professional to help you file your return and claim all the breaks (EITC, as well as other credits and deductions) for which you qualify. Many EITC eligible taxpayers, however, don't feel like they can afford to pay tax preparer fees. If that's you, you do have other options.
Find a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) location in your community. These nationwide sites are staffed by IRS-trained volunteers and in most cases are free to eligible taxpayers. Use the IRS' online search option or the IRS2Go smartphone application to find a nearby VITA or TCE site. You also or call toll-free (800) 906-9887.
Tax software available at Free File also can help you claim the EITC, which you do so by filing Schedule EIC, an excerpt of which is shown below. The programs, this year from seven brand-name companies, lead filers through a question-and-answer format to help prepare the tax return, including claims of the EITC and other potential credits and deductions.
If your adjusted gross income is more than the $73,000 Free File threshold, the IRS also provides online versions of paper tax forms via Free File Fillable Forms. They don't have the computation capabilities of software, but work well for taxpayers who are comfortable preparing their own returns. And the use of the fillable forms, and subsequent e-filing, is free.
Be patient: Finally, if you qualify for the EITC, remember that old saying about good things coming to those who wait.
Even if you filed your 2022 tax return, including an EITC claim, on Jan. 23 when the IRS officially opened up this year's tax season, you aren't going to get your refund for a while.
Don't blame the IRS. Under the Protecting Americans from Tax Hikes, or PATH, Act that became law in 2015, Uncle Sam's tax collector cannot issue a refund that is from a return on which the Earned Income Tax Credit or Additional Child Tax Credit is claimed before mid-February.
This hold covers your entire refund, even the portion not associated with the EITC or ACTC. The delay is to give the IRS more time to double check returns and prevent potentially fraudulent refunds from being issued.
The IRS expects most EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards by February 28 if taxpayers chose direct deposit and there are no other issues with their tax return.
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