Complex steps for claiming the Earned Income Tax Credit and a lack of awareness about the benefit are the most common reasons why taxpayers fail to claim it, according to H&R Block.
H&R Block, which prepared one of every four tax returns claiming the EITC in 2006, helped more than 5 million taxpayers claim nearly $10 billion in EITC benefits last year. Still, the IRS estimates that nearly a quarter of those who qualify don't claim the valuable credit, leaving as much as $1 billion unclaimed.
The EITC offsets income taxes as a work incentive for low-income Americans. Because the credit is refundable, it also is an income source in cases where there is no tax liability. Income level, filing status and the number of eligible children determine the amount of the credit, which can be worth more than $4,500 this year.
In addition to the federal EITC, the District of Columbia and 19 states have enacted their own earned-income credits to reduce poverty by cutting taxes for families and workers. Those states include Delaware, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, New York, Oklahoma, Oregon, Rhode Island, Vermont, Virginia and Wisconsin.
About one-third of eligible federal EITC taxpayers live in states that have state earned-income programs. The Center on Budget and Policy Priorities predicts more than $1.5 billion in state-level EITC benefits will be available this tax season.