What is the Earned Income Tax Credit?

Posted onCategoriesPersonal Finance

The Earned Income Tax Credit (also known as the EITC or EIC) is a special benefit offered to low or middle income taxpayers. Unlike some other forms of income assistance, the EITC is only available if you have “Earned income.” That is, income you’ve received either from working for someone or by owning and operating a business of your own, income from sources like unemployment benefits won’t count. For some individuals, the EITC may not only reduce your tax burden, but can actually give you a larger tax return. This makes it a valuable income boost for some individuals and can benefit the economy at large, since the higher tax returns are then reinvested into the economy by paying past due bills or making larger purchases that the taxpayer may not have been able to otherwise afford. According to the Center on Budget and Policy Priorities, in 2016 the EITC lifted about 5.8 million people out of poverty, including about 3 million children.

The amount of the EITC that is received by a given tax payer is based on a number of factors, including their earned income for the year as well as the number of qualifying dependants they may have. While it’s true that taxpayers with children can expect a larger credit, you don’t necessarily have to have a child or other kind of dependant to receive the EITC. For the purposes of the EITC, dependants will need to fit a number of qualifications including filing status and living arrangements. Because of these varying qualifications, it can be difficult for the average taxpayer to know if they qualify for the Earned Income Tax Credit. The IRS does have an online assistant that can help you predict if you would qualify, but our certified tax professionals can review your entire tax situation and make sure that even if you don’t qualify for the EITC, you are receiving the full tax return that you should be qualifying for. Give us a call today!