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A Potential Windfall: What to Know About EITC for Your 2012 Tax Filing

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 2012.

Let’s say you made $38,000 in 2012, 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 over $5,000 to your owed taxes. That means you would get a payment, or “refund” of $1,000 plus. And that’s on top of any normal income tax refund you might already be receiving.

How do you get this tax credit and refund? First, you must file a tax return.

Second, you must have “earned income” of less than $45,060 a year ($50,270 if you are married and filing jointly) if you have three (or more) qualifying children; $41,952 ($47,162 married filing jointly) with two qualifying children; $36,920 ($42,130 married filing jointly) with one qualifying child; $13,980 ($19,190 married filing jointly) with no qualifying children.

And, the more dependents you claim (up to three), the greater the tax credit amount. Your tax credit could be as much as $5,891 (if you have three or more qualifying dependents), down to $475 (if you have no qualifying dependents).

You must have lived in the U.S. for at least half of the tax year.

You must be between the ages of 25 and 65.

There are special EITC rules for members of the military, ministers, members of the clergy, those receiving disability benefits, and those impacted by disasters.

New for 2012 tax filings: You must provide proof of residency documentation when you sit down with your tax preparer (school records, medical records, child care records, etc.).

Review the details on the IRS’s website.

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 quality for the EITC. They will let you know what information and documents you will need to provide.

New this year: All PayDayHawaii clients qualify for $20 off our already low tax preparation fees!

And remember, use our Refunds Today tax service, and you’ll receive your refund fast! You can file your tax return electronically through e-file as early as January 30 this year.

Request a callback to set up an appointment, or download your tax interview sheet on PayDayHawaii’s website.

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