Filing taxes is a big issue for many low-income taxpayers in America. With the current economic crisis, not all salaries stretch enough to cover people’s basic needs, which results in many citizens struggling to pay their federal taxes.
Fortunately, there are programs designed to provide low to moderate-income earners with tax credits. These credits are essential, as they can help you save on your tax contribution and even improve your tax refund.
One such scheme is the Earned Income Tax Credit. This article looks at this scheme’s scope, eligibility, and how you can claim it in 2023.
What is the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) or Earned Income Credit (EIC) offers financial support to low and moderate-income families. It is a refundable tax, which means that you can claim the credit even if you’re not owing any federal tax.
This program is managed by the US Department of the Treasury and provides credits that low-income taxpayers can claim and which are commensurate with their earnings – up to a maximum credit.
It’s essential to note that both the credit and maximum rates depend on family size, as families with more children get larger tax credits.
How Does the EITC Work?
By default, the tax credit benefits taxpayers with earned income. This includes wages, salary, net earnings, and tips from employment. It also includes long-term disability and union strike benefits received before the minimum retirement age.
However, earned income doesn’t include passive income like dividends or interests. It also doesn’t include retirement income, child support, alimony, retirement benefits, or pay received by Social Security or while incarcerated.
Income Limit for EITC
There are different earned income tax credits provided for taxpaying breadwinners. Families with no children can claim $600. Families with 1 or 2 children can claim $3,995 and $6,604, respectively. Families with 3 or more children can claim up to $7,430.
How to Qualify
You must meet the following requirements to qualify for the earned income tax credit:
- Be a US Citizen or have legal residency status
- Have earned income under $59,187 from wages or running your own business or farm
- Don’t have or be a child of another qualifying person
- Have an investment income of less than $10,300 in the 2022 tax year
- Have a valid Social Security number by the due date of your 2022 return
- Don’t have filed Form 2555 (Foreign Earned Income)
You can use this eligibility checker to check if you’re eligible for the tax credit.
How to Apply for Earned Income Tax Credit
To apply for the EITC, you should file your tax return online or by mail – even if you are not required to file one or do not owe any tax. You may be asked to provide information about your income and any qualifying children you have.
You will need the following documents when filing for the tax return:
- Form 1040 (US Individual Income Tax Return)
- Form 1040-SR (US Tax Return for Seniors)
- Scheduled EIC (Form 1040 or 1040-SR)
How Long Do You Have To Wait?
If you file your tax return online, it will be processed within 21 days after receipt. However, if you mail your paper return, it may take up to a month to get processed.
How to Check the Status of Your Application
You can check the status of your tax refund through the following:
Both applications are updated daily, so you only have to check your status once every day.
What If Your Application Gets Denied?
If your application gets denied due to a math or clerical error, you can re-file your tax refund but include Form 8862 (Information to Claim Certain Credits After Disallowance). However, if you were denied because you were banned due to recklessness, intentional disregard of the rules, or due to fraud, you cannot re-file for the tax credit.
Earn More With the EITC
The Earned Income Tax Credit (EITC) is a tax credit for low-to-moderate-income working individuals and families. It is designed to help offset the burden of Social Security taxes and to provide an incentive to work.
Additionally, the EITC is intended to supplement wages and help families and individuals move up the economic ladder. Remember that the credit amount will vary depending on your income and the number of children.