Taxes

Don’t Miss This Commonly Overlooked Tax Break

By Wednesday, February 19, 2020

There’s a lucrative tax benefit in the U.S. that you might qualify for without even knowing it. The Earned Income Tax Credit (EITC) is a tax break aimed at low to moderate-level income taxpayers, and the IRS says many people qualify but don’t take advantage of it.

In simple terms, the EITC is a credit that’s based on your taxable income, and according to the IRS, taxpayers who earn $55,952 or less might qualify. The credit was initially designed to help low to middle-income workers afford Social Security taxes. Since then, the EITC is generally recognized as a program that supports lower-income workers and their families through a fair, earned refund. Unfortunately, many people do not know about the EITC. According to the IRS, only “four of five eligible taxpayers claim and get the EITC.” So few people take advantage of this tax break that the IRS named January 31st as “EITC Awareness Day” to encourage more people to apply. 

In order to qualify, you must have earned at least $1 in income, your taxable investment income can be no more than $3,600, and you must not file separately if married. Additionally, you will not qualify for the EITC if you plan to file Form 2555 or Form 2555-EZ, both of which address foreign income. One other surprising factor to note: If you do not have dependents, you must be between 25 and 65 to qualify. 

The amount you’re eligible to receive varies, but for 2019, the credit ranges from $529 to $6,557. In 2019, EITC-qualifying taxpayers received an average credit of $2,504. You can read more about the adjusted gross income limits and maximum credits here, but as a general example, if you are single with no dependents and earn $15,820 or less, you could receive $538 in return. In order to see if you qualify, you can try the EITC Assistant in English or Spanish. The assistant will ask questions about your residency, investment income, earned income and qualifying children. Among other requirements, in order for your child to count as “qualified,” they must live in the same household as you for more than half the year, have a direct relationship to you (an adopted child, niece, or half-sibling, for example), and possess a valid Social Security number. 

If you believe you may qualify for this significant tax benefit, your best bet is to set aside 10 minutes to find out more. Best of all, if you didn’t claim the EITC in the past three years’ worth of tax returns (2016-2018), but you qualified, you can still claim it by April 15th. In other words, if you didn’t file your taxes during a year that you may have qualified, you can retroactively file those taxes and get the credit. And if you filed your taxes but didn’t claim an EITC, you can submit an amended return. (If you do, be sure to check the given year’s qualifying income limits on the IRS website, as they are adjusted year to year.) Though anything tax-related is a bit of a hassle, in this case, it could be worth your time and effort.

Simplicity Bryan is deeply entrenched in the worlds of self-help, gratitude, personal finance, and organization. She’s happiest paddleboarding with her pup and storytelling with a purpose. You can follow her here.

Image via Pexels

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