Tax time marks an important start to the year. It’s a time to reflect back on your income, retirement savings and deductions from the previous year and make financial decisions about the new year. It’s also a time where many Americans rely on their refund to pay prior months’ rent payments and catch up on some ignored and necessary home or vehicle repairs that they haven’t been able to afford through the year.
The Earned Income Tax Credit (EITC) is one of our country’s strongest tools for combating the crisis of poverty. Unfortunately, many eligible individuals don’t know it’s available to them simply because they do not file a tax return.
The EITC is a tax credit for low-income earners who, if eligible, can receive up to $6,318 from the credit, even if they paid no income taxes.
Even if you are not required to file a tax return - because your income is below the filing threshold (which is the total of your personal exemptions and standard deduction) - you can and should still file to claim the EITC and get a refund for the entire amount of federal taxes withheld from your pay.
For example, if you are single and your total income in 2017 was $10,400 or less, you aren't required to file a tax return. That's because the personal exemption and standard deduction for single filers -- $4,050 and $6,350, respectively -- will reduce your taxable income to zero. A married couple can earn up to $20,800 in 2017 and not have a filing requirement but may be eligible to claim the EITC, especially if they have dependent children.
Even though the EITC is one of the most effective tools in alleviating poverty, many who are eligible for the tax credit miss out on the opportunity simply by not filing their tax return. According to Communally’s “Hidden Help Report”, over 6.6 million Americans eligible for the EITC did not claim it in Tax Year 2016; losing out on a total of $16.3 billion.
Data from the Census Bureau’s Supplemental Poverty Measure Report shows that over 8 million individuals, including 4.4 million children, were kept out of poverty in 2016 thanks to the EITC and the Additional Child Care Tax Credit. As with the Supplemental Nutrition Assistance Program (SNAP), EITC has also been shown to have long-term impacts on health, education and employment outcomes for participants.
Based on a review of the effect of the 1993 expansion of the EITC, research has shown improvement in the health of mothers and an improvement in infant health through a reduction in low birth weight. For younger youth (8-13 years old), math and reading scores increased through the receipt of the EITC. For youth between the ages of 13 and 18, being part of a family receiving the EITC increases the likelihood of both graduating from high school as well as attending college. These youth also have positive employment experiences as adults.
For tax year 2017, the maximum EITC permitted is up to $510 for taxpayers with no dependents and up to $6,318 for taxpayers with three or more qualifying dependents.
For those still looking file before the April 17th deadline, The Benefit Bank® online service (TBB) is an IRS-certified tax assistance and filing service on a single, streamlined platform and is completely free to users.