Today is National Earned Income Tax Credit Awareness Day! The Earned Income Tax Credit (EITC) is a huge benefit to taxpayers with low to moderate income and has helped lift millions of people out of poverty. Make sure that you file your taxes so you can determine if you qualify and, if so, you can count yourself among the millions of hardworking Americans who receive the money they have earned.
According to the IRS, more than 27 million filers received the EITC last year, and the average EITC was about $2,400. However, millions of taxpayers are still missing out on this valuable tax credit. The IRS reports that one out of five qualifying filers fail to claim the tax credit.
You may ask why someone would miss a tax credit worth up to $6,269 for a family with three or more children. Many people who qualify miss out because they are newly qualified or choose, perhaps mistakenly, to not file a tax return because their income falls below the IRS income filing limit ($10,350 single, $20,700 married filing jointly).
Don’t worry about the figuring the credit out on your own. TurboTax will ask you simple questions about you and will then calculate the credit if you are eligible based on your answers. With TurboTax you are not charged a fee to claim EITC on your taxes.
Want to know more? Here is some important information about the tax credit and how you get it.
What Exactly is the Earned Income Tax Credit?
The EITC is a refundable tax credit given to taxpayers that earn low to moderate income from a job or being self-employed. It may not only eliminate your income tax liability, but if the credit is more than the amount of tax you owe, you can receive a tax refund for the amount of your credit.
Who is eligible to claim Earned Income Credit?
Generally speaking, you are eligible for the EITC if you meet the income limits and all of the following apply:
- You are a U.S. citizen
- You are over the age of 25 or have qualifying children
- You do not file “married filing separately”
- You have earned income from employment. Unemployment income doesn’t count.
You also can have interest, dividends and other investment earnings, but not more than $3,400 in 2016. But remember, most importantly, you have to file your federal taxes in order to claim this valuable credit.
What are the income limits?
The limits are adjusted each year and for tax year 2016, your earned income and adjusted gross income must be less than:
- $47,955 ($53,505 married filing jointly) with three or more qualifying children
- $44,648 ($50,198 married filing jointly) with two qualifying children
- $39,296 ($44,846 married filing jointly) with one qualifying child
- $14,880 ($20,430 married filing jointly) with no qualifying children
What is the Amount of the Credit?
Your income and number of qualifying children will determine the actual amount of your credit.
For tax year 2016 the maximum credits are as follows:
- $6,269 with three or more qualifying children
- $5,572 with two qualifying children
- $3,373 with one qualifying child
- $506 with no qualifying children
What is a qualifying child?
A child qualifies if he/she meets four tests for: age, relationship, residency, and joint return as follows:
- Age – Generally, your child must be under 19, or under 24 if a student; or any age if permanently and totally disabled.
- Relationship – Your child must be either your son, daughter, foster child, or stepchild (including all of their respective children). Your “qualifying child” can also be your brother, sister, half brother or sister, or step sister or brother (including all of their respective children).
- Residency – Your child must have lived with you in the U.S. for more than half the year.
- Joint Return – Your child must not have filed a joint return. If they did file a joint return it should have been because they were filing for a tax refund, not because they were actually required to file.
The Protecting Americans from Tax Hikes (PATH) Act, signed into law in December 2015, requires the IRS to hold tax refunds that include Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) until February 15, 2017 no matter what tax preparation method you use. According to the IRS, taxpayers who claim the EITC or ACTC will likely see refunds the week of February 27. The IRS began accepting and processing tax returns when they opened for the season on January 23, 2017 and encourages you to file as soon as possible so you can get closer to your tax refund.