The Earned Income Tax Credit (EITC) is a tax credit that benefits low to moderate-income working individuals and families. It was created in 1975 as part of the tax reform efforts aimed at reducing poverty among working families. The EITC has been one of the most successful anti-poverty programs in the United States, providing much-needed financial relief to millions of Americans each year.
Here are fifteen things you need to know about the Earned Income Tax Credit:
1. Eligibility: To be eligible for EITC, you must have earned income from employment or self-employment and meet certain income limits. The amount of your EITC depends on your income and family size.
2. Family Size: Your EITC amount increases with your family size, up to a maximum of three children.
3. Age Requirements: You must be between 25 and 65 years old at the end of the tax year to qualify for EITC if you do not have any qualifying children.
4. Qualifying Children: To claim the EITC with qualifying children, they must meet certain relationship, age, residency and dependency requirements.
5. Maximum Income Limits: For tax year 2021, if you have no qualifying children, your earned income and adjusted gross income (AGI) must be less than $15,980 ($21,920 married filing jointly). If you have one child or more than one child then this limit will increase accordingly.
6. Investment Income Limitations: In order to receive an EITC you cannot exceed investment incomes above $3,650 for this current fiscal year
7. Amounts Vary by Year: The maximum EITC amounts change every year based on inflation adjustments stipulated by law passed by Congress.
8. Free Tax Preparation Services Available: The Internal Revenue Service (IRS) offers free tax preparation services through its Volunteer Income Tax Assistance (VITA) program. This is a good resource for individuals who are eligible for the EITC and need assistance with filing their tax returns.
9. Refundable Tax Credit: The EITC is a refundable tax credit, meaning that if your credit exceeds the amount of taxes you owe, you will receive the excess as a refund.
10. Claiming Retroactively: If you did not claim the EITC in previous years but believe that you were eligible, you can file an amended return to claim it retroactively.
11. No Effect on Public Benefits: The EITC does not affect eligibility for other public benefits such as Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), or Medicaid.
12. Qualification Changes with Life Events: Your qualification for the EITC can change based on life events such as marriage, divorce, birth or adoption of a child or loss of employment.
13. State Earned Income Tax Credits: Many states offer their own versions of earned income tax credits to supplement federal credits available under this scheme
14. Military Personnel Eligibility: Members of the military and veterans may also be eligible for additional EITC benefits due to their service status
15. Fraud Penalties Apply: Claiming fraudulent deductions related to your eligibility under this scheme may result in penalties and prosecution by law enforcement agencies.
The Earned Income Tax Credit has been an essential tool in helping working families meet their basic needs while also stimulating local economies through increased spending power among these groups . It remains one of the most effective means by which government can address income inequality issues in our society today