For the past 11 years, the IRS has promoted an annual nationwide campaign to increase awareness about the Earned Income Tax Credit (EITC) so that qualified taxpayers will be able to claim their rightful tax credit.
In 2016, 26 million American taxpayers received over $65 billion dollars in EITC refunds. However, the IRS estimates that only 4 out of 5 workers claim the EITC they earned, meaning that a substantial number of eligible taxpayers are missing out on refunds for which they are entitled. The purpose of Awareness Day is to reach those eligible taxpayers to encourage them to claim the tax credit they are due.
The Earned Income Tax Credit was established as a benefit for people with low to moderate incomes. In order to qualify for the credit, taxpayers must meet certain requirements and they must file a tax return, even if they do not owe any taxes or are not required to file.
By claiming the EITC, an eligible taxpayer could reduce the amount of taxes they owe, which could result in receiving a larger refund. This is money they could use for groceries, rent, utilities or other personal expenses.
Determining eligibility for the EITC is complex. It varies by the amount of income, the number of qualified children and filing status. To be eligible, a taxpayer must have earned income or have been the recipient of disability income. This means income must have been generated by working for an employer or being self-employed.
Essentially, any worker in 2016 who earned less than $53,505 should investigate whether they are eligible for EITC. As an example, a worker with qualified children could receive a refund up to $6,269. Workers without a qualifying child could be eligible for a smaller credit up to $506. In general, EITC adds $2400 to the average refund.
For more information about eligibility requirements for claiming the EITC, please visit this page on the IRS website. To estimate what your individual EITC refund might be based on your personal circumstances, please go here.
The IRS is also using Awareness Day this year to promote other refundable tax credits that are available to qualified taxpayers. Those credits include the American Opportunity Tax Credit, the Child Tax Credit and the Additional Child Tax Credit.
Additionally, taxpayers who qualify for the EITC may also be eligible for free tax preparation and electronic filing by participating tax professionals and volunteers.
The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who make $54,000 or less, and who need help in preparing their tax returns. Trained and certified by the IRS, volunteers will ask all the necessary questions to determine whether a taxpayer qualifies for the EITC. They also will prepare and electronically file tax returns at no cost to the taxpayer.
As noted above, the EITC was designed to assist low-to-moderate income taxpayers. As a result, it helps to reduce poverty by supplementing the earnings of low-wage workers. According to the Center on Budget and Policy Priorities, the EITC lifted nearly 6.5 million people out of poverty, including an estimated 3.3 million children in 2015. Without the EITC, the number of poor children would have been more than 25% higher. The credit also reduced the magnitude of poverty for another 21.2 million people, including more than 7.7 million children.
Studies have shown that reducing poverty is especially impactful for young children. Lifting children out of poverty not only improves a child’s immediate well-being, but is also associated with better health, improved school performance, higher college attendance rates, and increased earnings in adulthood.
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