Earned Income Tax Credit (EITC) Day

Each year the Internal Revenue Service designates January 30, as Earned Income Tax Credit (EITC) day. The awareness day is held annually to increase participation in the EITC program, and encourage the use of Volunteer Income Tax Assistance (VITA) sites, and similar tax preparation services that are absolutely free to the public.

Earned Income Tax Credits (EITC) was established in 1975 to offset higher Social Security taxes, and increase the incentive to work.

Federal Legislation resulted in a Refundable Tax Credit that is currently putting more than $45 Billion in the hands of 22 million low wage workers.

The program is also responsible for raising 4.1 Million families – including 2.2 million children – above the poverty line.

Earned Income Tax Credits (EITC) is the Federal governments largest benefit program for low income working families, and is also one of the more complicated. Although $45 billion is expensed annually, an additional $10 billion goes unclaimed by eligible taxpayers, who are either confused, or unaware of complicated eligibility requirements.

The greatest confusion is the lack of a clear understanding of how a “Non-Dependent Child” can be claimed as a personal exemption of one parent, while being claimed for EITC benefits by the other parent. In essence, a non–dependent is the child of a parent who has primary (custodial) placement of the child, but the personal exemption has been awarded to the other parent in recognition of child support payments, or similar issues typically resolved by Family Courts during a divorce proceeding. Included in the Tax Code, are a number of “Tie Breaker” rules which will often grant the EITC benefits to the parent having primary placement of the child. Unfortunately, too many taxpayers fail to understand how a single child can be by different parents for different tax benefits.

Federal EITC tax credits are limited to two Qualifying Children on the Federal Tax Return. There are an additional 22 states including the District of Columbia offering State supported EITC benefits. Although the calculations and eligibility requirements are different for all State programs, the taxpayer needs to be aware whether or not the state in which he is a resident offers EITC benefits.

Finally, there are guidelines in the Form 1040 instructions that eliminate the need to file a tax return. These guidelines are based on income, but EITC benefits are also available to low to moderate income single taxpayers. And if the taxpayer’s age is between 25 - 65, and the taxpayer has earned income, but does not file a return, the taxpayer forfeits any eligible EITC credits. Accordingly, it is in the taxpayer’s best interest to determine whether they are eligible for Earned Income Tax Credits before identifying the need to file.

Although there are additional reasons EITC benefits are being overlooked, John Verwiel has written this article to identify three of the major problems. John has spent 13 years preparing Federal and State Income Tax Returns in conjunction with the Volunteer Income Tax Assistance program sponsored by the Internal Revenue Service. The services included in the VITA program are absolutely free, and John’s knowledge in Tax Planning and Preparation has helped numerous taxpayers to better identify all of the benefits they are legally entitled. John is also a member of the Taxpayer Advocacy Panel, which is an advisory panel to the Internal Revenue Service. The responsibilities of all panel members are to listen to taxpayers concerns, and make recommendations to the Internal Revenue Service.