Millions of Americans forgo critical tax relief each year by failing to claim the Earned Income Tax Credit (EITC), a federal tax credit for individuals who work but do not earn high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.
In 2017, an estimated 25 million taxpayers received almost $63 billion in EITC. However, the IRS estimates that 25 percent of people who qualify don’t claim the credit and at the same time, there are millions of Americans who have claimed the credit in error, many of whom simply don’t understand the criteria.
EITC is based on the amount of your earned income and the number of qualifying children in your household. If you have children, they must meet the relationship, age and residency requirements. And, you must file a tax return to claim the credit.
If you were employed for at least part of last year, you may be eligible for the EITC based on these general requirements:
- You earned less than $15,570 ($21,370 if married filing jointly) did not have any qualifying children, and were at least age 25 but under age 65, or
- You earned less than $41,094 ($46,884 if married filing jointly) and have one qualifying child, or
- You earned less than $46,703 ($52,493 if married filing jointly) and have two qualifying children.
- You earned less than $50,162 ($55,952 if married filing jointly) and have three or more qualifying children.
There’s a lot to know about qualifying for EITC, and this year, the EITC Assistant. Please contact us for more information!
Are you eligible for any of these tax credits?
Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns, advises the IRS. A tax credit is a dollar-for-dollar reduction of taxes owed.
Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Below are some of the credits taxpayers could be eligible to claim:
Earned Income Tax Credit
This is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the EITC. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.
For more information, see IRS Publication 596, Earned Income Credit (EIC).
Child Tax Credit
This credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses.
For more information on the Child Tax Credit, see Pub. 972, Child Tax Credit.
Child and Dependent Care Credit
This is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work. There is a limit to the amount of qualifying expenses. The credit is a percentage of those qualifying expenses.
For more information, see Pub. 503, Child and Dependent Care Expenses.
Adoptive parents can take a tax credit of up to $10,390 for qualifying expenses paid to adopt an eligible child. A credit of up to $10,390 may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses.
For more information, see Pub. 968, Tax Benefits for Adoption.
Credit for the Elderly and Disabled
This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are citizens or residents. There are income limitations.
For more information, see Pub.524, Credit for the Elderly or the Disabled.
There are two credits available, the Hope Credit and the Lifetime Learning Credit, for people who pay higher education costs:
The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return.
The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year.
For more information, see Publication 970, Tax Benefits for Education.
Retirement Savings Contribution Credit
Eligible individuals may be able to claim a credit for a percentage of their qualified retirement savings contributions, such as contributions to a traditional or Roth IRA or salary reduction contributions to a SEP or SIMPLE plan.
To be eligible, you must be at least age 18 at the end of the year and not a student or an individual for whom someone else claims a personal exemption. Also, your adjusted gross income (AGI) must be below a certain amount.
For more information, see chapter four in Publication 590, Individual Retirement Arrangements (IRAs).
There are other credits available to eligible taxpayers. Contact J Kelly & Associates with your specific situation and we can advise what is right for you.