Pity the Earned Income Tax Credit (EITC) -- it's so misunderstood! Not only are many taxpayers who are qualified to take the credit missing out by not claiming it, but millions of people who are not eligible for EITC try to claim it each year.
"The IRS has estimated that as many as 25 percent of taxpayers that qualify to take the Earned Income Tax Credit (EITC) don't claim it," said Keith Stanton, EA, an enrolled agent in Nashville, Tennessee, and board member of the National Association of Enrolled Agents (NAEA). "In Tax Year 2005, over 22 million taxpayers who did claim the credit saved $41.4 billion dollars in taxes they didn't have to pay or received refunds."
Eligible families may claim up to $4,536 in a refundable credit. Many of those who don't think to claim the credit are self-preparers who don't have the advantage of expertise provided by a licensed tax professional, or families whose income is low enough that they are not required to file.
The EITC was developed for low-income working families with children. Requirements for this credit include:
- Earned income of less than $12,120, or $14,120 if married filing jointly, and no qualifying children;
- Earned income of less than $32,001, or $34,001 if married filing jointly, and one qualifying child;
- Earned income of less than $36,348, or $38,348 if married filing jointly, and more than one qualifying child.
In order to take the credit, claimants must have a valid Social Security number, have earned income from employment or self-employment and cannot use the filing status "married, filing separately." Claimants must have been employed for at least part of 2006 and must file a return.
Those without a qualifying child must be at least 25 years old, but under the age of 65, at the end of the year and must have lived in the US for more than half the year. Claimants must not qualify as a dependant of another person.