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What You Need to Know About EITC—A Potential Tax-Time Windfall

It’s called the Earned Income Tax Credit. Sounds like confusing government-speak, doesn’t it? But it could mean a windfall for you and your family.

First, what is it? The Earned Income Tax Credit (EITC) is a refundable tax credit that was designed for lower-income working families (although you don’t need to have children to qualify). That means it’s a credit against the taxes you owe to the IRS for your work in 2011.

Let’s say you made $38,000 in 2011, and the total amount of taxes you owe (which may already have been deducted from your paycheck) is $4,000, and let’s say you have two qualifying dependents. The IRS will allow you to apply your EITC credit of approximately $5,000 to your owed taxes. That means you would get a payment, or “refund” of $1,000. And that’s on top of any normal income tax refund you might already be receiving.

How do you get it? First, you must file a tax return.

Second, you must have “earned income” of less than $43,998 a year ($49,078 if you are married and filing jointly). And, the more dependents you claim (up to three), the greater the tax credit amount.

Your tax credit could be as much as $5,751 (if you have three or more qualifying dependents), down to $464 (if you have no qualifying dependents).

Review the details on the IRS’s website here.

The EITC was designed to assist low-to-moderate income families, and to help lift families out of poverty. In 2004 alone, 21 million people received EITC payments. And yet, each year millions of taxpayers, between 15% and 25% of those eligible, don’t file for their EITC, leaving billions of refund dollars unclaimed.

If you are using a tax preparer (like PayDayHawaii), be sure to ask them if you qualify for the EITC. And remember, use our Refunds Today tax service, and you’ll receive your refund fast!

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