1 in 5 Eligible Filers Missed This $2.5K Tax Credit Last Year, IRS Reports
Nearly half of Americans (43%) admit that they don’t understand how tax credits work, a recent GOBankingRates study found. So it’s not too surprising that many Americans missed out on claiming the Earned Income Tax Credit (EITC) last year.
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According to the IRS, “approximately 23 million workers and families received about $57 billion in EITC for tax year 2022, and the average amount of EITC received was about $2,541.” However, many tax filers missed out on this valuable credit, with the IRS estimating that about 1 in 5 EITC-eligible taxpayers don’t claim it.
Here’s what you need to know about the earned income tax credit so you don’t miss out if you’re eligible.
What Is the Earned Income Tax Credit?
The Earned Income Tax Credit — commonly called the EITC or EIC — is a tax break for low- to moderate-income households. It’s a refundable credit, which means that it can be used to reduce any tax bill you owe, and whatever is left over — or the entire credit, if you don’t have a tax bill — will come back to you as part of your refund. You can qualify with or without children.
The EITC debuted in 1975 and today, the credit saves over 20 million taxpayers and their families nearly $60 million. Aside from the federal government, 34 states offer their own version of the EITC, as do Washington, D.C., Puerto Rico, Guam and even some municipalities.
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Who Qualifies for the EITC?
There are a few basic qualifications that virtually every household must meet to be eligible for the EITC for tax year 2023:
You must have worked and earned less than $63,398 in income
You must have earned less than $11,000 in investment income
You must have had a valid Social Security number by the deadline to file your return, including extensions
You are required to have been a U.S. citizen or a resident alien for the entire year
You must not have filed Form 2555, which deals with foreign-earned income
It’s important to note that there are special qualifying rules for military personnel, members of the clergy, and taxpayers and their relatives with disabilities.
What Filing Statuses Are Acceptable?
Generally, people using the following filing statuses can claim the credit:
Married filing jointly
Head of household
Qualifying widow or widower
Single
Married filing separately (with an asterisk)
That last status is where things get tricky. If you’re married and not filing a joint return, you can claim the credit if you had a qualifying child who lived with you for more than half of 2023, but only if either of the following applies to you:
You and your spouse lived apart for the last six months of 2023
You and your spouse are legally separated according to the laws of your state or you have a decree of separate maintenance or a written separation agreement, and you and your spouse lived in different households at the end of 2023
How Much is the Credit Worth and What Are the Income Limits?
Here’s how much the maximum credit is worth depending on how many qualifying children you have:
Zero children: $600
One child: $3,995
Two children: $6,604
Three or more children: $7,430
The credit phases out at the following maximum adjusted gross income levels. The first maximum income level is for those filing as single, head of household, widowed, or married filing separately. The second is for married couples filing jointly.
Zero children: $17,640; $24,210
One child: $46,560; $53,120
Two children: $52,918; $59,478
Three or more children: $56,838; $63,398
If all of this is a lot to digest, don’t worry. Most tax software programs calculate your eligibility for the EITC automatically, and you can find out if you qualify on your own by using the IRS’ EITC Assistant and qualification calculator.
Gabrielle Olya contributed to the reporting of this article.
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This article originally appeared on GOBankingRates.com: 1 in 5 Eligible Filers Missed This $2.5K Tax Credit Last Year, IRS Reports
