How some Michigan families are getting a bigger Michigan income tax refund

Some working families in Michigan are getting a most welcome surprise when they file their 2023 state income tax returns — a far bigger state income tax refund than they imagined.

The reason? The state's earned income tax credit is far greater than it used to be. If a federal earned income tax credit is granted, the state of Michigan will provide up to an additional 30% credit when the taxpayer files their state income tax return.

If you qualified for a $3,000 federal earned income tax credit, for example, you could qualify for another $900 earned income tax credit in Michigan. In the past, the state credit was 6% or $180 extra if you qualified for a $3,000 federal credit.

The dollar amount that individuals receive when claiming the federal earned income tax credit varies dramatically based on family size, income and filing status. You need to have worked or have earned income in 2023. And you must file a federal return to claim the federal earned income credit and then file a state return to claim Michigan's earned income credit.

The filing deadline is April 15 for both the federal and Michigan income tax returns.

More: April 15 is the date: What you need to know to file your taxes

More: Earned income tax credit: What kind of income counts, who is eligible for 2023 returns

On the federal level, the maximum earned income tax credit is $7,430 in 2023 for an eligible family with three or more qualifying children. That is up from a maximum of $6,935 in 2022. As a result, the maximum Michigan earned income tax credit is $2,229 for 2023 for lower income households with three or more qualifying children.

With one qualifying child, the federal credit can be up to $3,995 in 2023. And the Michigan credit would be worth up to $1,198.50 in that example.

The range of the earned income tax credit is fairly wide, and again, reflects how much income was earned. Those making more money receive less money through the tax credit.

Those with three or more qualifying children can qualify for the earned income credit if their income is less than $56,838 if filing as single, head of household, qualifying surviving spouse, or married filing separately. The earned income credit would range from $11 to up to $7,430 for those who qualify, depending on income.

For married couples who are filing jointly, their income must be less than $63,398 to qualify for any credit for three or more qualifying children.

A lower income worker with no children also could qualify for some earned income tax credit. In that case, the income limit is $17,640 in 2023 for those filing single, head of household, qualifying surviving spouse, or married filing separately. The income limit with no children is $24,210 for married filing jointly. The federal EITC for this group can range from $2 to $600.

State Treasurer Rachael Eubanks encouraged working families to check to see if they are eligible and make sure to file a state income tax return for 2023.

To qualify, individuals must meet certain requirements and file a federal income tax return, even if no tax is owed or there is typically no requirement to file a return. If you miss the April 15 deadline, it's also possible for Michigan taxpayers to file their state returns late and if they're owed a refund, they're not assessed a penalty.

To file a federal income tax extension, though, you can obtain free software offered through a "Free File" partner at IRS.gov. Filing an extension gives you extra time to e-file the return. If you owe taxes, you must still estimate what you owe and need to pay it by April 15. You do not need to mail in a Form 4868 if you file a request electronically.

For state income tax returns, Michigan taxpayers would need to file Form 4, which is an application for extension. The federal extension does not automatically apply to state of Michigan income tax returns. All 2023 state income tax forms can be accessed via the web. See www.michigan.gov/taxes and "Search for all forms."

Through the end of March, the Michigan Department of Treasury had processed more than 2.6 million 2023 tax returns. The total refund amount has been $1.75 billion, or an average refund amount of $824.

The state treasury said it processed almost 464,000 returns that claimed the Michigan Earned Income Tax Credit for Working Families for tax year 2023 so far through the end of March. The average state credit was $913. The total amount paid for the state earned income tax credit amount was $423.6 million through the end of March.

IRS has more than $38 million in federal refunds for 2020 for Michigan

About 34,900 people in Michigan did not file a 2020 federal income tax return and continue to be owed nearly $38.3 million. But they're going to lose a chance at getting that money, if they don't file a 2020 return by a May 17 deadline. Half of them are owed more than $976 and half are owed less than that.

Nationwide, more than $1 billion is out there for unclaimed federal income tax refunds for 2020 returns that had not yet been filed by an estimated 940,000 taxpayers.

The money is owed based on taxes that were already withheld from paychecks or paid during 2020.

Under the law, taxpayers have up to three years to file a return to claim a refund. If they don't take action, the money goes to the U.S. Treasury. The May 17 deadline is unusual, but it reflects the deadline extension until May 17, 2021, that was made for 2020 returns during the COVID-19 pandemic.

While many things are back to normal, most of us well remember the disruption in daily life back in 2020 and 2021.

“People faced extremely unusual situations during the pandemic, which may have led some people to forget about a potential refund on their 2020 tax returns,” said IRS Commissioner Danny Werfel.

Students, part-time workers and others may have overlooked filing returns, he said, often not realizing they could be owed a refund.

For some families, the potential dollar amount that could be lost is even larger if they're missing out on some key tax credits.

Many low and moderate income workers who didn't file a 2020 return but do so by May 17 also would be able to claim additional money, if they qualify, for the earned income tax credit for 2020. For 2020, the credit could be as high as $6,660 for lower income taxpayers with three or more qualifying children.

Taxpayers are encouraged to review their files and gather records if they need to file a 2020 return, so they don’t miss the May 17 deadline.

Everyone isn't guaranteed to see extra cash if they're owed a refund for 2020. The refund money may be held if the taxpayer hasn't filed tax returns for 2021 and 2022. And any refund amount for 2020 would be applied to amounts still owed to the IRS or a state tax agency and can be used to offset unpaid child support or other past due federal debts, such as student loans.

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.

This article originally appeared on Detroit Free Press: Two ways some Michigan families can get a nice tax refund surprise