By Henry Orbe and Ervis Burda
Are you leaving money on the table? Learn about the Earned Income Tax Credit to find out.
The Earned Income Tax Credit (EITC) is the largest federal tax credit for working Americans and a powerful tool that has helped reduce income inequality for the last 46 years. Still, approximately 20% of eligible taxpayers do not claim this important credit. As January 28, 2022 marks the 16th annual EITC Awareness Day, let’s take this opportunity to learn how you could access this credit and take full advantage of it to increase your family’s financial health.
1. What is a tax credit and how does the EITC work?
A tax credit is an amount of money, taxpayers are allowed to subtract from the taxes they owe allowing or even given them a bigger refund. It basically means more money in your pocket. The EITC, is available to workers whose earned income falls within a certain range and it is fully refundable, which means you can receive it even if you do not have a tax liability. For example: If your tax bill is $1,000 and you qualify for an EITC of $1,500, you would be entitled to a $500 refund.
- Tip: If you qualify for the EITC, you may also qualify for other federal, state, and local tax credits, such as the Child Tax Credit (CTC) or education tax credits. New York State, for example, also offers a version of the EITC, but you must claim federal EITC in order to get it.
2. How much could you get?
It all depends on your specific situation. However, the EITC is worth as much as $6,660 for a family with three or more children or up to $538 for taxpayers who do not have a qualifying child. Furthermore, any refund you receive due to the EITC is not counted as income when applying to federal or federally funded public benefits or assistance.
3. Who qualifies for the EITC?
To qualify for the EITC, you must meet the following eligibility rules:
- Be a U.S. citizen or a resident alien all year
- Have a valid Social Security number for yourself, your spouse (if filing a jointly), and for each qualifying child claimed for the EITC
- Claim a certain filing status (not eligible for married filing separately status)
- Show proof of earned income
- Have investment income below $3,650 in the tax year you claim the credit
4. How can you claim it?
Eligible individuals and families must file a tax return to receive the EITC. Free tax preparation help is available for those who earned $72,000 or less in 2021. For more information visit NYC Free Tax Prep।
- Tip: Even if you generally don’t have to file taxes because your earnings are below the income requirement, you should consider filing in order to receive the EITC benefit. You can ask a financial counselor if this makes sense for you.
5. How can you avoid errors or avoid being a victim of scams?
You are responsible for the accuracy of your tax return even if someone else prepares it. Thus you have to make sure you choose a reputable and trusted tax preparer or organization to file your taxes. Beware of scams and tax preparers that promise to increase the EITC refund. Sometimes, those companies use fictitious qualifying children, claim dependents incorrectly, or falsely increase or decrease your income level in order to get a higher EITC. This could result in serious penalties and legal trouble for you.
- Tip: The IRS has a database that can help you check if your tax professional holds professional credentials recognized by the IRS. Be sure to also check this useful video from the IRS to “Choose a Tax Preparer Wisely”
6. Take full advantage of your credit: A NYLAG financial counselor can help you plan the best way to use this money based on your financial goals. Also make sure to check the simple steps suggested by the Consumer Financial Protection Bureau in this article.
Still have questions?
NYLAG Financial Counselors can help you understand how this credit works and can help you review your tax return to check if you have claimed credit properly. Counselors can also refer you to VITA sites that can help you file your taxes and answer other tax questions for free if needed.
- If you are currently working with a NYLAG financial counselor, reach out to them now to discuss your tax planning options.
- Connect with a NYLAG financial counselor।
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