Do You Qualify for this Valuable Tax Credit?
Many working families can benefit from the Earned Income Tax Credit. This credit can be used to reduce the taxes you owe. Millions of eligible people miss out on this credit every year because they don’t file tax returns or are too intimidated by the filing process to take advantage of this.
According to a report from The Tax Policy Center, about five million eligible people miss out on this credit annually. These five million people consist of those with incomes so low they aren’t required to file taxes (so they don’t) and those who don’t claim the credit because of its apparent complexity.
For those who did file, the average credit for a family with three children in 2017 was about $3,200. Families have used this credit to cover basic needs or some to repair their homes and/or cars. Research has shown that some people use the credit to seek career assistance to boost their job prospects.
Families who want to determine their eligibility for the credit can check the IRS website’s Earned Income Tax Credit section. Further guidance is available from Code for America, a technology-oriented nonprofit. The Volunteer Income Tax Assistance Program (VITA), a free tax preparation program can also offer help in filing. These two organizations recently linked together to provide virtual assistance to help eligible families submit their returns and claim the credit. VITA is run by IRS certified volunteers and generally assists those with incomes below $57,000. According to the IRS about 1.6 million tax returns were filed through VITA sites in 2018.
Even before the corona virus pandemic there was a need for remote assistance. Many people did not have time to take off work to visit one of the VITA centers. Code for America partnered with dozens of VITA sites in 31 states to create a digital tax preparation service, called Get Your Refund. Using the Get Your Refund web platform or mobile app, filers can verify their identity and upload the relevant tax documents. They can then talk to a volunteer (virtually) who will prepare their return. The program has gotten impressive reviews and is an easy (and free) way for people to file their returns and obtain the credit. Get Your Refund helped 30,000 filers claim more than $62 million in tax refunds in 2020.
The Earned Income credit is subtracted from the amount owed in taxes. If a family’s credit is more than it owes in taxes, the excess is paid as a refund. The size of the credit varies based on your income, family size, and filing status. In the 2020 filing year, the credit is available to those making less than $57,000. The maximum credit is $6,660. The IRS also added a provision for those whose incomes decreased as a result of the pandemic. Those individuals who fit in this situation will be able to use the income earned in 2019 to qualify for the credit, if it results in a larger credit. Research from the Center on Budget and Policy priorities has shown that the credit promotes work and reduces poverty. According to the study, women who filed for and benefited from the credit experienced higher wage growth in subsequent years than otherwise similar women. By boosting their income, these women were able to increase the Social Security payments they will ultimately receive upon retirement. Eligible families will want to file for this credit before the April 15, 2021 deadline. Go on the IRS website today to determine your eligibility.