By Tom Ozimek
The Internal Revenue Service (IRS) has issued a reminder that millions of Americans are eligible for a tax credit that last year averaged over $2,000 but 20 percent of those entitled to the money didn’t claim it.
“This is an extremely important tax credit that helps millions of hard-working people every year,” IRS Acting Commissioner Doug O’Donnell said in a Jan. 27 statement. “But each year, many people miss out on the credit because they don’t know about it or don’t realize they’re eligible.”
At issue is the Earned Income Tax Credit (EITC), which Congress first approved in 1975 in part to offset the burden of Social Security taxes and provide an employment incentive.
The tax credit is administered by the IRS, which said that in 2022, some 31 million eligible Americans received around $64 billion in EITC payments. The tax credit amounted to over $2,000 on average.
The IRS estimates that around 20 percent of eligible taxpayers don’t claim the EITC. People particularly prone to overlooking the tax credit include those living in non-traditional homes (such as a grandparent raising a grandchild), those whose earnings declined or whose marital or parental status changed, as well as people living in rural areas, veterans, the self-employed, and those with earnings below the tax return filing requirement.
“In particular, people who have experienced a major life change in the past year–in their job, marital status, a new child or other factors–may qualify for the first time,” O’Donnell said. “The IRS urges people to carefully to review this important credit; we don’t want people to miss out.”
The EITC is considered a tax credit for lower-income filers, although there are a number of variations of income, filing status, and number of dependents that have an impact on eligibility.
The EITC is for workers whose income did not exceed the following limits in 2022:
- $53,057 ($59,187 married filing jointly) with three or more qualifying children who have valid Social Security numbers (SSNs).
- $49,399 ($55,529 married filing jointly) with two qualifying children who have valid SSNs.
- $43,492 ($49,622 married filing jointly) with one qualifying child who have valid SSNs.
- $16,480 ($22,610 married filing jointly) with no qualifying children who have valid SSNs.
- Investment income must be $10,300 or less.
Taxpayers who meet the income requirements and have qualifying children can receive a maximum of $6,935.
For taxpayers with no dependents, the maximum EITC is $560.
Married but separated spouses who don’t file a joint tax return may also be eligible if they meet certain qualifications.
In order to qualify, people who don’t earn enough to be obligated to file a tax return must file one in order to claim the credit.
In order to navigate EITC eligibility, the IRS has a tool called the EITC Assistant that people can use to check if they qualify and how much they can expect to receive.
The IRS recently cautioned that many taxpayers should expect a smaller refund this tax season because of tax law changes. This includes the expiration of pandemic-related stimulus payments and changes to the Child Tax Credit (CTC) that would otherwise have boosted refund balances.
The Recovery Rebate Credit was a way for millions of Americans to receive pandemic support if they did not receive their full amount via stimulus checks. This credit was available for missing amounts from the first, second, and third round stimulus checks, and could only be claimed on 2020 and 2021 tax returns.
The stimulus checks were discontinued in December 2021 and the missing third-round amounts could only be claimed on a 2021 tax return filed in 2022. However, people who may have missed the opportunity to claim missing third-round stimulus payments can review their 2021 tax return and consider filing an amended return.
The CTC for 2022 tax returns has been reduced to $2,000 per child, down from the expanded amount of $3,600 for children under 6 and $3,000 for children between 6 and 17 in 2021.
Some taxpayers may be eligible for an Additional Child Tax Credit (ACTC), which would allow them to receive up to $1,500 of the CTC as a refund on their tax return.
Also, a tax credit that working parents can use to help cover child care costs or that people with adult dependents can use for that purpose is lower in 2022.