The Earned Income Tax Credit (EITC) is an underutilized tax credit, worth up to nearly $6,000, designed to help low income American workers escape poverty. Although approximately 27 million taxpayers have received about $59.5 billion in 2011 by claiming the credit, one in five eligible taxpayers misses out on the EITC.
In order to claim the EITC, taxpayers must be employed with income falling below certain thresholds. Single filers, with no children, who earned less than $13,660 in 2011 could be eligible for a credit of up to $464. The amount of the EITC credit increases with the number of qualified dependents a taxpayer can claim. Single filers who earned less than $43,998 and married filers who earned less than $49,078, with three or more qualifying children may be eligible for a credit of up to $5,751.
The amount of the credit is applied to the amount of the taxes owed. Since the EITC is a refundable credit, if the EITC credit amount is larger than the total tax liability, the excess amount may be refunded to the filer.
Many taxpayers who may qualify for the credit are unaware of it because they have such low incomes that they are not required to file taxes. Others may have had changes to their employment situations, such as a reduction in work hours or became freelancers, and may not be aware of the tax credit because they had never qualified for it before.
The IRS has a tool on its website, which takes about twenty minutes to use, that can help taxpayers determine whether or not they qualify for the credit and estimates an EITC tax benefit amount. TurboTax also has a smartphone app, EITC Finder, that can help filers determine whether or not they are eligible.
Read more at CNN Money.