Everyone can use some tax savings; and if you make below a certain amount of income, the Earned Income Tax Credit can make a huge difference.
Next time tax season rolls around, don’t forget about the Earned Income Tax Credit, or you may deprive yourself of substantial taxes savings — to the tune of as much as $6,000. That may very well mean the difference between writing a check to the IRS, or receiving a big refund.
Many of us put in the extra effort to total up our tax deductions, but for some reason, as many as one in five of those who need it most don’t even try for the EITC.
What’s This “Tax Credit” Business?
Like a deduction, a tax credit is a set amount, calculated on need, that lowers the amount of tax you owe. Unlike deductions, though, if it lowers the amount of tax owed to zero, you get the difference. So if you owe $1,000 without the EITC, and you qualify for an EITC of $2,000, then the IRS will send you a check for $1,000.
Similarly, if your other deductions and such lower your owed taxes to $0 but you can qualify for that same $2,000, then that’s what you get. But ONLY if you claim the EITC! By and large, the IRS won’t do the work for you. And because some taxpayers won’t either, their losses total in the billions every year.
That’s money Uncle Sam gets to keep that could and should be in someone else’s pocket.
The Feds designed the EITC to help people escape poverty, which it effectively did for 6.3 million people in 2010. Currently, the government defines the poverty level as less than $11,000 in annual income for one person, or $22,000 for a family of four.
As of 2011, if you earn less than $13,660 as a single filer and have no dependants, the EITC is $464. The amount goes up, however, if you have dependant-aged kids who qualify. If you earn less than $43,998 and have three or more qualifying children, you can get an EITC of as much as $5,751.
If you’re a married filer with three or more kids, the maximum income to receive that same amount rises to $49,078.
As you can see, this can mean some serious savings on your taxes. And here’s something a lot of people who earn minimal incomes don’t know: that even if you have such a low income that you don’t have to file taxes in a particular year, you can still file and get the EITC. It may not be much, but it’ll be something.
If you’ve recently gone from a full-time to a part-time position, or otherwise get your work hours cut, you may also be able to benefit from the Earned Income Tax Credit.