In the world of taxes, tax credits help taxpayers to lower their tax bill. One such credit is the Earned Income Credit, or EIC. This credit was instituted as a way to help low income wage earners to rise above their circumstances.
The earned income credit began in 1975. The idea was that the poor were just getting poorer with the taxes they were paying on top of a low income job. The credit gives back to taxpayers a good portion of the money that they paid in taxes throughout the year. In that way, families could keep more of what they earned.
The amount of the earned income credit has increased over the years. Those who fought for the tax credit agree that it is a better way to help people living in poverty than trying to raise the minimum wage. People that receive the tax credit sow that money back into the economies of their neighborhoods where it helps everyone.
Income that is counted towards eligibility for the earned income credit is of three types. Firstly there is wages earned at a job. Wages include tips if you are a server in a restaurant. Any monies that are paid out to you by your employer such as bonuses are a part of this category.
Secondly, there is money earned as a self-employee. People can own their own business and still not be able to make ends meet for themselves or their families. Every penny earned through the business is considered in the earned income credit equation.
Lastly, money made by someone under your care is considered. Teenagers have weekend and/or summer jobs. The money may not be enough for them to file a return of their own, but it is added to what their parents earn. Together, the income determines the amount of the earned income tax credit you qualify to receive.
The IRS also counts any income from investments as income earned. If you have money made from investments or drew unemployment for a time during the year, this will affect your chances of receiving the earned income credit. Investment money earned which is over $2,800 can disqualify a taxpayer from the earned income credit.
Each year thousands of dollars in earned income credit go unclaimed. Filers either don’t know about the tax credit or they don’t think that they will qualify. Not having to file a return doesn’t mean that the tax credit doesn’t apply to you. Even if your income is below the amount that which is required for filing a tax return, you may still qualify for the earned income credit. Don’t sell yourself short. You could be passing up thousands of dollars that is yours under this tax credit.
The earned income credit is a way to give back to those families who need it most. Their work is rewarded with a credit that could net them a refund of several thousand dollars.