Fiscal WeekWith tax filing season, Two Cents puts on its green glasses and focuses on stories that will help you navigate tax preparation and get the most out of your return.The income tax credit earned offers up to $ 6,660 for qualified applicants, but it seems like too many Americans know nothing about it. While 25 million Americans are classified, the IRS just says so 20% of them claim credit to your federal tax return. Here’s why and if you leave cash on the table.
How does the income tax credit work?
The income tax credit (EITC) is mainly designed to provide financial assistance to working families with children. For fiscal year 2020, applicants can choose to:
- A $ 6,660 credit if you earn less than $ 56,844 and have three children.
- A $ 538 credit if you are single, earn less than $ 15,820, and have no children.
Please note that unemployment income is not considered earned income, so it cannot be included as part of the calculation. For more information on EITC eligibility based on family size and income, check out this Nerdwallet post.
The most important thing about this particular credit is that it is refundable, which means that if the credit exceeds the taxes you owe, the rest will be paid as a refund. Also, this year, as part of the Taxpayer Tax and Disaster Relief Act of 2020, if your income earned was higher in 2019 than in 2020, you can use the 2019 amount to find out your EITC for 2020. (It is worth mentioning here that President Biden American Rescue Plan proposes a temporary increase in the maximum amount allowed for childless workers, from $ 530 to $ 1,500, applicable in fiscal year 2021).
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So why don’t more people claim credit?
Many low-income people don’t file income tax returns because it’s not mandatory when you earn less than $ 12,200, so they just don’t know it.
In addition, credit may be the most complicated to calculate, as it uses complicated rules and formulas that are not easy to understand. Eligibility is determined by a combination of income types (with a limit on investment income), marital status at the end of the year, citizenship status, and the number of children you have, where they live. and his age. In addition, eligibility may change from year to year.
How it is determined if it meets the requirements
The quickest and easiest way to determine eligibility is through the file EITC Assistant on the IRS page. The site takes you step by step through all the eligibility criteria in the format of a questionnaire, followed by a calculation of how much you may be owed.
Also consider using the file IRS Free File Program, which, in collaboration with private tax preparation companies, offers free software that will calculate and process your EITC claim. Of course, if at any time you feel uncomfortable with credit claim software, it may be worth it. hire a tax preparer.
Lastly, consider the Volunteer Income Tax Assistance Program, known as VITA, which offers face-to-face (socially distant) services in various parts of the country. Unfortunately, due to COVID, there are fewer VITA service locations this year, but you can try to find one near you. here.