The Internal Revenue Service (IRS) estimates that four out of five taxpayers who meet eligibility requirements don’t claim the Earned Income Tax Credit (EITC), the government’s largest program for helping low-income working families, the Washington Post reports. Last year 21.1 million taxpayers claimed a total of nearly $40 billion through the EITC credit, enacted by Congress in 1975 as a way to help low-income workers. The average claim was $1,850.
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Outreach efforts by the IRS and community organizations have increased in recent years, according to a report in Newsday, but many people fail to file for the credit for two primary reasons. Some, who do not need to file because their income is very low, do not understand that the EITC is both a credit and a refund, and can generate a refund even when there is no tax due. Others believe that the credit is only available to taxpayers with children.
“What we’re trying to do is make it easier for people to find out if they’re eligible,” said David Williams, the IRS national director for the earned income credit. “We want to maximize participation and minimize error.”
Because of its complexity the EITC can lead to errors, the Post says, and the size of the refunds can lead to fraud. As a result, it is one of the most commonly audited claims in the tax code.
Maximum federal credits range from $399 for single taxpayers with no children and incomes of less than $11,750, to $4,450 for couples filing jointly with two children who have income of less than $37,263. There are additional requirements for eligibility, and the IRS recommends that taxpayers seek free tax help from the IRS, either by phone or at IRS.gov, or from the many volunteer tax assistance programs in local communities.
Leslie Tarbert, a teacher’s assistant with the Early Head Start program in Kansas City, Missouri, last year used the credit for a down payment on the purchase of a home, ABC News says. Tarbert, a single mother with two children, told ABC, “This year with the money, I’m paying my daughter’s braces off. I also have to buy siding for one side of my house, and maybe think about putting gutters on.”
Efforts to reach the families who are not claiming the credit have been coordinated in New York by the Department of Consumer Affairs, which has put together a coalition of nonprofits, corporations and unions in New York City and on Long Island, Newsday says. In Pennsylvania, the Commission on Economic Opportunity, led by Gene Brady, is collaborating with the IRS to provide fee tax preparation assistance for families, according to the Wilkes Barre Times Leader. The IRS gets to the point quickly in Connecticut. The opening message on local IRS office telephone numbers is, “If you have income of less than $38,000, come in to one of our offices for assistance.”
The four most common EITC errors, according to the IRS on its EITC web site for tax preparers are:
- Claiming a child who is not a qualifying child
- Filing as single or head of household when married
- Filing income incorrectly; and
- Using incorrect Social Security numbers.
The web site contains links to helpful resources for tax preparers.