On Jan. 27, the Internal Revenue Service launched The Earned Income Tax Credit Awareness Day, which is its annual outreach campaign aimed at helping millions of Americans take advantage of the Earned Income Tax Credit (EITC).
According to the IRS, 20% of Americans qualify for the Earned Income Tax Credit which can be worth $464 if the worker has no children, and as much as $5,751 for those with three or more qualifying children. To be eligible, workers must have earned $49,078 or less from wages, self-employment or farm income.
Here’s the problem: one in five taxpayers overlook this valuable tax credit. Some miss out because their income is low enough that they aren’t required to file a tax return. So take stock, if you had a W2, but earned such a small amount that you think you needn’t file, crunch the numbers anyway--you may be pleasantly surprised.
Others don’t bother checking because they didn’t qualify for the credit in the past--but with many consumers’ financial situations changing, they may now qualify to take the credit on their 2011 income tax returns. With the economy in such disarray, the IRS figures that almost a third of the population has experienced dramatic shifts in their finances. It’s estimated that 20% of those who qualify don’t claim it or don’t file a tax return at all.
The amount you can receive via the EITC varies by income, family size, and filing status. People can see if they qualify by visiting www.irs.gov and answering a few questions using the EITC Assistant. In tax year 2010,almost 26.8 million eligible workers and families received more than $59.5 billion from the EITC. The average EITC amount last year was around $2,200.
Unlike most deductions and credits, the EITC is refundable. In other words, eligible people may get a refund from the IRS even if they owe no tax or had any tax withheld from wages.
- To get the EITC, workers must file a tax return, even if they are not required to, and specifically claim the credit. Those eligible for the EITC have free options to file a tax return to claim the credit: Free File on IRS.gov: Free brand-name tax software walks people through a question and answer format to help them prepare their returns and claim every credit and deduction for which they are eligible. The program also allows people to file electronically for free, giving them access to all their money often in as little as 10 days.
- Free tax preparation sites: EITC-eligible workers can seek free tax preparation at more than 12,000 Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites. To locate the nearest VITA site, call the IRS at 800-906-9887. Taxpayers can also find VITA/TCE sites by calling their community’s 211 or 311 line for local services.
- IRS Taxpayer Assistance Centers: EITC-eligible workers can seek free assistance in IRS locations across the country. Locations are listed online at www.IRS.gov. Hours and services offered vary by location and should be checked before visiting. More information on EITC and detailed eligibility rules are available at www.irs.gov/eitc.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.