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Taxes are a burden for Americans who work in a wide range of incomes. But low wages, more than anyone else, tend to struggle to keep up.
Fortunately, the IRS offers some relief in the form of earned income tax credit, or EITC. For the 2018 taxation year, the EITC could be worth up to $ 6,431. It is therefore useful to check if you are entitled to it.
How do tax credits work?
Unlike a tax deduction, which simply exempts a portion of your income from tax, a tax credit equals a reduction of one dollar out of two of your tax liability. This means that if you are eligible for a $ 2,000 tax credit, $ 2,000 will automatically be deducted from your tax bill.
Source of the image: Getty Images.
Now, many tax credits are not refundable, which means they can at most reduce your tax to $ 0. For example, if you owe $ 500 in taxes to the IRS but you are entitled to a $ 1,000 tax credit, you will not get that $ 500 difference if the credit in question is non-refundable. The EITC, however, is one of the few tax credits that is Refundable, which means that while it brings your tax burden back under $ 0, the IRS will send you the difference.
Qualification for the EITC
The EITC is designed to help low payers and to qualify for this credit, you will need income from a job or company you own. In addition, your tax reporting status must be one of the following:
- Unique
- Jointly married marriage
- Head of household
- Widow qualifying
In addition, you may not have investment income in excess of $ 3,500 if you wish to claim the foreign income tax credit.
If you meet the above criteria, you can claim the Working Income Tax Credit if you have the following number of children in your household and your earnings do not exceed the following limits:
|
Tax return status |
No eligible children |
1 qualified child |
2 qualified children |
3 or more eligible children |
|---|---|---|---|---|
|
Single, head of household or widowed |
$ 15,270 |
$ 40,320 |
$ 45,802 |
$ 49,194 |
|
Jointly married marriage |
$ 20,950 |
$ 46,010 |
$ 51,492 |
$ 54,884 |
Data source: IRS.
Do not forget that if you have children, there are other tax credits that you may be entitled to, such as the child tax credit or the child care expense credit. Children and dependents (if you pay childcare fees to work). You are allowed to claim several credits on your taxes, so it is worth exploring your options.
Regarding the value of the EITC, it will depend on the number of children in your household, as follows:
|
Number of eligible children |
Maximum value of the EITC |
|---|---|
|
0 |
$ 519 |
|
1 |
$ 3,461 |
|
2 |
$ 5,716 |
|
3 |
$ 6,431 |
Data source: IRS.
Now, remember how we talked about the fact that the EITC is a refundable tax credit. If your tax payable is equal to $ 0 and you meet the conditions to qualify for the maximum value of the EITC, the IRS will send you $ 6,431. However, to get this money, you must file a tax return and claim the credit – a staggering amount that 20% of eligible filers fail to make each year.
One more thing: the income limits and credit values above apply to the 2018 tax year – in other words, the income tax return you will file this year. In 2019, you can earn a little more and still claim the credit if you qualify. The maximum value of the EITC has also increased up to $ 6,557 for the 2019 tax year, so if you claim it for your 2018 taxes, also be sure to keep it in your radar for the next year.
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