eight Myths About The Earned Earnings Tax Credit score (EITC) At Tax Time

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We have made it via the primary week of the tax submitting season! With some tax returns are already on the way in which for processing, the Inner Income Service (IRS) is reminding taxpayers to not overlook in regards to the Earned Earnings Tax Credit score (EITC). January 31 has been designated “EITC Consciousness Day” – the 14th yr of the attention marketing campaign that alerts hundreds of thousands of employees to this important tax credit score.

“The EITC is a crucial tax credit score that helps hundreds of thousands of hard-working working households across the nation,” mentioned IRS Commissioner Chuck Rettig. “It is vital that folks assessment the credit score to see in the event that they qualify. Rising consciousness in regards to the EITC is necessary, and the IRS is proud to help the continued efforts by companion teams throughout the nation for sharing this crucial data with taxpayers.”

The EITC is the federal authorities's most substantial refundable federal earnings tax credit score for low- to moderate-income employees. The credit score has been round since 1975 and was supposed to offset the burden of Social Safety taxes —a bit of your pay over and above federal earnings taxes—and to offer an incentive to work. The end result? Taxpayers could also be entitled to a refund even when they in any other case owe no tax.

There's a number of confusion surrounding the EITC. To assist clear it up, listed below are eight myths in regards to the EITC:

1. The EITC is a welfare system for those who do not work. Please do not share memes that say that individuals who don't work get EITC-related tax refunds on the expense of those that do work. That is not true. To qualify for a refundable tax credit score like an EITC (those that pay out even should you do not pay in), you need to work. It is actually within the title: Earned Earnings Tax Credit score. Earned earnings usually contains wages, wage, suggestions, and internet earnings from self-employment. It additionally contains union strike advantages and long-term incapacity advantages obtained previous to minimal retirement age and might also embrace nontaxable fight pay. Earned earnings doesn't embrace passive earnings, which suggests earnings that you just aren't actively producing by yourself, like curiosity and dividends, pay that you just obtain whereas incarcerated, retirement earnings, Social Safety, unemployment advantages, and alimony. It additionally would not embrace baby help (that is tax impartial).

2. Solely households with youngsters qualify for the EITC. When you have earned earnings and a sound Social Safety quantity, your filing status should be married submitting collectively, head of family, qualifying widow(er), or single; you may't declare the EITC in case your submitting standing is married submitting separated. You have to additionally meet particular earnings standards. Particularly, your tax yr funding earnings should be $three,500 or much less for the yr; you have to not file kind 2555, Overseas Earned Earnings, or kind 2555-EZ, Overseas Earned Earnings Exclusion; and you have to have at the very least $1 in earned earnings (sure, that signifies that a self-employed one that claims a loss will not qualify). You do not have to have youngsters to qualify, however the quantity of your tax credit score relies in your earnings and the variety of your qualifying youngsters. A qualifying baby for the EITC should meet all the following standards:

• The kid should be below age 19—age 18 or youthful—on the finish of the tax yr OR the kid should be youthful than you or your partner (should you file collectively) and below age 24 and a full-time scholar OR the kid was any age and completely and completely disabled;
• The kid should both be your son, daughter, stepchild, foster baby, brother, sister, stepbrother, stepsister or a descendant of any of those people, which incorporates your grandchild, niece or nephew;
• The kid will need to have lived with you for greater than half of the tax yr (some exceptions apply); and 
• The kid can't file a joint return for the tax yr until the kid and the kid's partner didn't have a separate submitting requirement and filed the joint return solely to say a refund.

Just one particular person can declare the identical baby for a similar tax yr. As for you? You have to not be the qualifying baby of one other particular person to say the EITC.

three. You'll be able to qualify for the EITC if you're undocumented. It doesn't matter what you have learn on Fb, unlawful aliens usually are not entitled to refunds due to some tax coverage involving ITINs. That is not true. When you have earned earnings, you, your partner and any qualifying baby in your tax return should every have a sound Social Safety quantity issued earlier than the due date of your tax return (together with extensions) to qualify for the EITC. You have to even be a U.S. citizen or resident alien for your entire yr. Once more, we have all seen the tales about of us who aren't within the nation legally snatching up EITC tax refunds, however barring fraud, that is not doable.

four. EITC refunds are issued instantly. Taxpayers who declare the EITC or Further Youngster Tax Credit score (ACTC) could have to attend somewhat longer for his or her tax refunds that taxpayers who don't declare EITC or ACTC. The IRS should wait till mid-February to start issuing refunds to taxpayers who declare the EITC or the ACTC. Along with common processing instances for banks, factoring in weekends, and the President's Day vacation, the earliest EITC and ACTC-related refunds are anticipated to be accessible on or about February 28, 2020; that is assuming direct deposit and no different points.

5. The EITC is routinely paid to you even should you don’t file. To qualify, you have to meet particular necessities and file a federal earnings tax return for the tax yr even when you don't owe any tax or are not required to file a tax return. This can be a frequent misunderstanding and is likely one of the explanation why the IRS has over a billion in unclaimed refunds from yr to yr ($1.four billion in unclaimed refunds for 2015 alone).

6. Loads of of us are mendacity to get EITC. Sure, fraud occurs. And errors occur. However you would be shocked on the who and the why. According to the Treasury Department, 70% of EITC improper funds (the massive ones that get all the press) are tied to confusion in regards to the guidelines. Probably the most complicated? Residency and relationships, often those who contain baby custody, divorce, and different points associated to who can declare a toddler in non-traditional household preparations. That’s why a 2017 research discovered that almost all improper EITC-related funds had been the results of errors, not intentional actions.

7. You do not qualify for the EITC.* Okay, this one is hard. I truly do not qualify for the EITC – and it's possible you'll not, relying in your earnings and household measurement. However the IRS estimates that 4 of 5 eligible taxpayers declare and get the EITC. Final yr, 25 million taxpayers obtained over $61 billion in EITC. The common EITC quantity obtained was $2,504. 

eight. It is costly to file for the EITC.  The principles for the EITC may be difficult to navigate. Particular guidelines apply to members of the army, ministers, members of the clergy, these receiving incapacity advantages, and people impacted by disasters. Some age restrictions might also apply. These bits imply that it is sensible to ask for assist, and it doesn’t need to be costly. Free tax preparation assist is obtainable on-line and thru volunteer organizations – even for EITC taxpayers. Take into account choices like Free File (free brand-name tax software program); Free File Fillable Forms; Free tax preparation sites (you will discover one utilizing the IRS app or name toll-free 1.800.906.9887); or use a trusted tax professional.

And should you've been studying my work for some time now, you already know that I am not an enormous fan of the EITC. I do not assume the Tax Code is essentially one of the simplest ways to advance social coverage. However, adore it or not, it's one in every of best methods to place extra cash within the pockets of employees and it’s already on the books: no further work concerned. Taxpayers incomes $55,952 or much less can see if they're eligible utilizing the EITC Assistant device at IRS.gov/eitc. The EITC Assistant, accessible in English and Spanish, helps customers decide if they're eligible and if they've a qualifying baby or youngsters, and it estimates the quantity of the EITC they might get. If a person would not qualify for the EITC, the Assistant explains why. For assist, click on over to the EITC Assistant on the IRS web site or examine along with your tax skilled.

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