Millions Overlook
the Earned Income Tax Credit - Have You?
Eligible workers leave more than
$3 billion in federal aid on the table each year
Last year, more than four million taxpayers missed out on a tax
credit intended to put money back in the pockets of working families.
The Earned Income Tax Credit (EITC), introduced by Congress in 1975,
was designed to ease the burden of payroll and income taxes on low-
to moderate-income families and create an incentive to work for
lower wage earners who might otherwise turn to public assistance.
Although an estimated 21 million eligible families received more
than $36 billion—or an average of $1,700 per family—through
the EITC in 2003, the IRS estimates that 25 percent of those eligible
don’t claim the credit. Many taxpayers simply do not know
the EITC exists or that they are eligible to receive it. Claiming
the credit may appear complex, but guidelines and resources are
available to help taxpayers determine where they stand.
Eligibility Requirements
Eligibility for claiming the EITC starts with some basics: The person
must earn income, possess a valid Social Security Number, be a U.S.
citizen or resident alien for the entire tax year, and not be claimed
as a qualifying child of another taxpayer.
Beyond these initial requirements, household income and the number
of qualifying children are key factors in determining eligibility
and the amount of EITC that can be claimed.
The IRS allows individuals to claim the credit who:
- Earn less than $34,458 and have more than one
qualifying child ($35,458 if married filing jointly)
- Earn less than $30,338 and have one qualifying
child ($31,338 if married filing jointly)
- Earn less than $11,490 and have no qualifying
child ($12,490 if married filing jointly)
Important change:
Starting this year, members of the U.S. military who receive
combat pay can elect to either include or exclude this non-taxable
pay as earned income in order to calculate the EITC. This could make
some taxpayers eligible for the credit who weren’t otherwise
or increase the size of their credit.
Qualifying Child for EITC
It’s important to remember that the IRS
defines a qualifying child based on the child’s age, relationship
to the taxpayer, and residency. For EITC, a qualifying child must:
- Be under age 19 at the end of the year, a full-time
student under the age of 24, or be permanently and totally disabled.
- Be a son or daughter, stepchild or adopted child;
a sibling, stepsibling or a descendent of any of these and cared
for as the taxpayer’s own child; or a foster child placed
in the home by an authorized placement agency.
- Have lived with the taxpayer in the U.S. for
more than six months of the year. U.S. military personnel on extended
active duty outside the U.S. are considered to have lived in the
U.S. during this period.
In the case of multi-generational families,
divorced parents and single parents, only one taxpayer can claim the
same qualifying child. But taxpayers do have the option to decide
who will claim the credit in order to get the maximum tax benefit.
There are also eligibility requirements for taxpayers who don’t
have a qualifying child. In this case, the taxpayer must:
- Be at least age 25, but under age 65,
- Not be a dependent of another person,
- Not be a qualifying child of another person,
and
- Have lived in the U.S. for at least six months
of the year.
Calculating EITC
Once you've determined you're eligible to claim
the credit, you can either use the EITC worksheet to calculate the
amount or seek the assistance of an experienced tax professional.
Common errors that can cause delays in receiving the EITC include
failing to notify the IRS of a change in address, reporting inaccurate
income, duplicating a qualifying child's Social Security number on
multiple returns and filing an incorrect date of birth for a child.
Additionally, reckless or intentional errors result in a denial of
EITC for two years; fraudulent filings bring a 10-year suspension
from claiming the credit.
Educating Taxpayers
Numerous education efforts are under way to reach individuals who
are eligible for the credit. H&R Block, which helped nearly six
million families benefit from the credit last year, has partnered
with the Association of Community Organizations for Reform Now (ACORN)
to reach more eligible workers.
This unique endeavor pairs H&R Block’s tax and financial
expertise and funding for educational materials with ACORN’s
outreach programs via its nationwide network of 62 chapters, as well
as its ties with other community organizations.
For a comprehensive list of the EITC Eligibility Rules, visit www.irs.gov
to review IRS Publication 596. The IRS also offers online tools through
its EITC Assistant to help determine eligibility and to navigate the
process.
Taking Advantage of EITC
Helping eligible workers take advantage of the EITC makes a real difference
in the quality of life for low-income families. The income returned
to a household can be used to put food on the table, pay bills, increase
savings, or even put a family on the road to home ownership.
If you think you may be eligible to claim the EITC, contact a local
H&R Block tax or ACORN office in your area. It’s important
to note that if you would prefer to receive part of next year’s
credit throughout 2005 via reduced payroll taxes, as opposed to a
refund at tax time, you can complete an Earned Income Advance
Payment Certificate (Form W-5) and turn it in to your employer.
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