Please ensure Javascript is enabled for purposes of website accessibility

Get Credit (the Earned Income Tax Credit) Where Credit's Due

By FINRA Staff - Apr 2, 2019 at 3:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Don't miss out on free money from the government when you file your taxes.

Every dollar counts, especially when you're trying to stretch each paycheck just to meet basic expenses. That's where the Earned Income Tax Credit (EITC) can be extremely helpful. Eligible workers can receive a refundable tax credit that could exceed $6,500.

Unlike a tax deduction, which lowers your taxable income, a tax credit reduces the taxes you owe dollar for dollar, leaving more money in your pocket. For instance, if you owe $1,000 in taxes and your tax credit is $500, you're tax bill is cut in half and you owe only $500. When a credit is refundable, like the EITC, it means you might get the benefit of this reduction, even if you don't owe any taxes.

A family reading a book

Image Source: Getty Images

Don't leave money on the table

One in five individuals eligible to receive the EITC do not claim it, the IRS notes in its annual EITC awareness information. Don't be one of them.

Veterans, Native Americans, people in rural communities and workers without children are most at risk of leaving money on the table, according to the IRS. And this money can be significant: the maximum credit for tax year 2018 (filed in 2019) is $6,557, for filers with three or more qualifying children, and $529 for eligible workers with no children.

Are you eligible for the EITC?

As its name implies, this credit is only for people who have earned income, meaning they work and get paid. Earned income includes earnings from working for someone else or earnings from being self-employed. But if you have investment income over a specified amount, or if you report having foreign earned income, you might not be eligible.

To find out whether you are eligible, use the online EITC Assistant at www.irs.gov, which walks you through a series of screens to determine whether you qualify and, if so, estimate your tax credit. The biggest factors are how much income you earned, the number of children you have and your tax filing status.

IRS rules—and tools—can be a bit intimidating. The good news is that trained community volunteers can help determine if you qualify for EITC and other refundable credits, and prepare your return. The service is free if you made $55,000 a year or less in 2018, and is available at more than 13,000 community volunteer tax assistance sites. Come prepared with a valid ID, income statements such as W2s and other information outlined in the IRS brochure Be Prepared To Get The EITC You Earned.

If you qualify for the Federal EITC, you may also be eligible for a similar credit from your state or local government. Twenty-five states, plus local municipalities including the District of Columbia and New York City, offer residents an earned income tax credit for 2018.

Here's one final tip. Even if you didn't qualify last year, it's worth checking again this year. About one third of the EITC eligible population changes every year, according to the IRS.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.