Don't Leave Money on the Table - Claim the Earned Income Tax Credit
If the federal government was handing out free money, wouldn't you think that all those who were eligible would be front and center, waiting tolerantly until it was their chance to pocket some needed funds?
Well, the government, and more specifically, the IRS, has been giving out funds via the Earned Income Tax Credit since the 70s. Problem is, not everyone is claiming it. Yes, the same guys and gals who are best known for collecting are also trying to administer government credits to those eligible.
The Earned Income Tax Credit (EITC) is the biggest and most under-claimed among IRS credits. EITC is a tax benefit that not only can decrease any tax liability down to zero, but can also generate a refund.
Rolled out in 1975 with a modest maximum credit of $400, the EITC continues to be available to certain lower income working individuals and families. For 2010 tax returns, families could claim a maximum credit of $5,666 with three or more qualifying children.
The original intent of the EITC was to offset a portion of Social Security and Medicare taxes, thus augmenting take-home income in lower-wage jobs. At the same time, the EITC provided an incentive to work and decrease one's dependency on government and state sponsored programs. Although many take full advantage of the EITC, the credit still goes unclaimed by about one quarter of those who are eligible.
Unfortunately, millions of individuals who are eligible for the EITC do not receive it, leaving billions of tax credit dollars left on the table. Research by the IRS in conjunction with the Government Accountability Office indicates that between 15 and 25 percent of households who are entitled to the EITC do not claim the credit.
One common myth regarding the credit is that you have to have children to claim it. While the amount of credit does increase with your family size, individual taxpayers are also eligible. In fact, childless workers with low-income are believed to be the largest group of taxpayers who do not claim the credit.
According to the IRS, if you are at least 25 years old but under age 65 at the end of the year, and you worked but had low wages, you may be able to claim the credit. This applies to married individuals without children as well. Income levels change per year, so you will need to check the thresholds specific to the year you are filing.
Another group that often lets the EITC get away are those who do not have a legal requirement to file. Seniors who continue to work part-time and students who are working but not earning enough to file should especially take note. Although not be required to file, by doing so, you may put yourself in line for a hefty refund from the EITC.
Another possible reason EITC does not get claimed despite the fact that many are entitled to it could be the numerous qualifiers one must meet.
For starters, you must have earned income, such as wages or self-employment. There are also income ceilings that phase out the amount of EITC you are entitled to. The rules differ as well depending on if you have qualifying children.
However, the IRS has simplified the process over the years, and also makes various tools available for taxpayers to easily determine their eligibility. Foremost among those is the IRS EITC Assistant, an online tool that quickly informs you if you are entitled to the credit.
Even if you have let the credit slip by, remember that you can always amend your tax return by filing Form 1040-X. There is a three-year statute to claim a refund, counting back three years from the current filing season.
For example, your 2010 tax return was due in April of 2011. Add three years to this filing deadline. This means you have until April 15 of 2014 to amend your 2010 tax return and still get a tax refund. Apply this rule retroactively to see if you can still amend a previous tax year and get a refund.
More from this Contributor:
Do I qualify for the Earned Income Tax Credit?
Published by James Skye - Featured Contributor in Business & Finance
As a 15-year IRS employee with a strong freelance background, my education and experience affords me the opportunity to contribute articles relating to personal finances and taxes. I also enjoy writing relig... View profile
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