January 26, 2018 is the 12th Annual Earned Income Tax Credit Awareness Day. As the IRS says, “You earned it - now file, claim it, and get it!”
The Earned Income Tax Credit (EITC) is a refundable credit for low- to moderate-income taxpayers which is primarily beneficial to those with children. To be eligible, the taxpayer must have “earned income,” meaning they were paid to work for someone else or they owned a farm or business. Income from Social Security, pensions, investments, alimony, etc. is not considered to be “earned income.” Taxpayers with more than $3,450 in investment income are not eligible for the credit.
According to IRS statistics, last year almost 26 million taxpayers received the credit, receiving an average amount of $2,470. In North Carolina, 898,000 taxpayers claimed the EITC, with the average credit being $2,509 Even so, the IRS estimates that 20 % of eligible taxpayers do not claim the credit. This may partly be due to the fact that roughly one third of the eligible population turns over each year since eligibility changes when a taxpayer’s marital, parental, or financial status changes. Many taxpayers may not be aware they can claim this valuable credit because they haven’t been able to get it in previous years.
The credit is based on income limits and whether or not the taxpayer has qualifying children. The EITC range follows a bell curve, with the credit rising as income rises. Once it reaches the maximum, the benefit begins to fall as income continues to rise. The maximum income to receive any EITC is $15,010 for a single taxpayer with no children. For married filing jointly taxpayers with three or more qualifying children, the income limit is $53,930. See this link for more information on taxpayers who fall between these extremes. The credit can range from as little as $2 for a childless single taxpayer to as much as $6,318 for married taxpayers with 3 or more kids.
The IRS lists some workers who are particularly at risk of overlooking the credit, including veterans and those who live in rural areas. However, eligible taxpayers most likely not to claim the credit are workers who did not earn enough to have a filing requirement. Obviously, you must file a tax return to get the credit, even if you owe no tax and aren’t required to file. The credit is refundable, meaning the taxpayer receives payment for any credit amount remaining after any tax obligation is met. However, as we’ve noted in past blogs, refunds for tax returns that claim the EITC will not be issued by the IRS until the end of February.
While the IRS is trying to make sure eligible taxpayers claim the EITC, it is also working hard to eliminate fraud within the program. Taxpayers who incorrectly claim the credit may have to pay it back while incurring penalties and fees. Those caught committing fraud may be barred from claiming the credit for a period of several years.
Most taxpayers who receive the EITC will agree that the modest fee charged for tax preparation is well worth the resulting credit. We know the tax law regarding EITC and will ensure all of our eligible clients properly claim it on their returns. Give us a call today to set up your appointment.