RSS FeedEITC=Earned Income Tax Credit. It doesn’t sound very exciting, but it could potentially mean an extra refund at tax time—and sometimes a very significant refund.
The EITC was designed to assist low-to-moderate income families, and is considered to be the nation’s largest and most successful anti-poverty and work-incentive program. Over $40 billion in EITC benefits are paid out each year to eligible taxpayers. But each year millions of people, between 15% and 25% of those eligible, don’t file for their EITC, leaving billions of refund dollars unclaimed. In Hawai`i alone, workers fail to claim $30 to $40 million in EITC benefits.
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 2014.
Here’s how it works: Let’s say you made $38,000 in 2014, 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 have a Social Security number, and you must file a tax return.
Second, you must have “earned income” of less than $46,997 a year ($52,427 if you are married and filing jointly) if you have three (or more) qualifying children; $43,756 ($49,186 married filing jointly) with two qualifying children; $38,511 ($43,941 married filing jointly) with one qualifying child; $14,590 ($20,020 married filing jointly) with no qualifying children.
The more qualified (meeting the IRS’s requirements) dependents you claim (up to three), the greater the tax credit amount. Your tax credit could be as much as $6,143 if you have three or more qualifying dependents, compared to $496 if you have no qualifying dependents.
Your stated “earned income” must come from employment, self-employment, long-term disability benefits, or non-taxable combat pay. Your investment income is limited to $3,350 for the year.
What doesn’t count as “earned income?” You cannot use income from the following to qualify for the EITC: Interest and dividends, retirement income, Social Security payments, unemployment benefits, alimony, child support, or pay for work while an inmate in a penal institution.
You must have lived in the U.S. for at least half of the tax year, and have been a U.S. citizen or resident alien for the entire year.
You must provide proof of residency documentation when you sit down with your tax preparer (school records, medical records, child care records, etc.)
There are special EITC rules for members of the military, ministers, members of the clergy, those receiving disability benefits, and those impacted by disasters.
Review the details on the IRS’s website here.
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. Don’t forget to also ask about other tax credit programs, such as the Child Tax Credit. You can file your tax return electronically through e-file as early as January 31 this year.
Request a callback to set up an appointment with PayDayHawaii, or download your tax interview sheet on PayDayHawaii’s website.
Questions? Just stop by any PayDayHawaii location for more information about your tax preparation.
