What is the Earned Income Credit?

The earned income tax credit (EITC) is a refundable federal income tax credit. Those families or individuals who are considered in the low or moderate income tax bracket and who have at least one family member who works may be eligible for this credit. This tax credit was established in 1975 in order to encourage individuals to become employed and to help with the burden of social security taxes that every employed person is required to pay. It is given to any individual who meets the requirements and who takes advantage of the opportunity.

In order to receive this tax credit, a taxpayer must file a tax return. He or she must have earned income from being employed, being self-employed, having another source of income, and meeting the additional rules for workers without having a qualifying child or a child that meets the qualifying child rules.  Those workers who do not have children may also be eligible for this credit, providing they meet the other eligibility requirements. Special rules apply for those who are members of the military, ministers, clergy members, those who receive disability benefits  and for those who have been affected by some type of disaster. If you fit into one of these special categories, you may still be eligible for the EITC, but be sure to check with an R&G Brenner professional tax preparer.

Just because you have qualified for the EITC in the past does not necessarily mean one will qualify for the EITC each time you file your future tax returns. It is important to take into consideration any change in lifestyle, income, or employment in order to determine eligibility. Claiming an EITC that is not earned is a legal offense and being convicted of doing so may result in serious consequences including fines, penalties and a ban from filing the EITC from 1 year to life.

It is also important to note that those who qualify for the EITC on their federal returns may also be able to receive a credit on their state or local income tax returns. Check IRS.gov to determine if your state has an EITC. If your state does, the individual should follow the steps necessary to claim this additional refund. In most cases, the state return will be smaller than the federal return.

Think of this credit as a reward for being employed and for contributing to society. It is not a “hand out,” and it will also not affect welfare benefits, Medicaid, supplemental security income, food stamps, low-income housing, or temporary assistance for needy family payments. You should also not assume that you automatically qualify for this tax credit. Even if you do not make enough money to be legally required to fill out a tax return, you must fill one out in order to qualify for this credit. If one qualifies for this useful credit, they should definitely take the steps necessary to ensure they receive it’s full benefit, including hiring a professional tax preparer.