Every year, millions of Americans diligently file their tax returns, but what many of them might not realize is that they are missing out on a valuable credit. The Internal Revenue Service (IRS) reports that in 2022, approximately 23 million taxpayers received a total of $57 billion from the earned income tax credit (EITC), a tax break designed to benefit low- to moderate-income workers. However, shockingly, nearly 20% of eligible taxpayers fail to claim this credit, despite the average payout being $2,541 in 2022. This oversight amounts to a significant loss for individuals and families alike.
As we look ahead to the 2023 tax year, the EITC is projected to be even more lucrative, offering a maximum credit of $7,430 for families with three or more children, compared to $6,935 in 2022. For eligible workers between the ages of 25 and 64 without a qualifying child, the credit can amount to up to $600. This money can make a substantial difference in the lives of those struggling to make ends meet.
Understanding Eligibility and Claiming the Credit
One of the main reasons why eligible taxpayers fail to claim the EITC is its complexity. According to Steven Hamilton, an assistant professor of economics at The George Washington University, the credit has numerous eligibility requirements. For tax year 2023, individuals with wages from employment below $56,838 ($63,398 for married couples filing jointly) and investment income under $11,000 may qualify. However, income limits vary based on the number of qualifying children. Adjusted gross income, which accounts for total income after deductions such as pretax 401(k) contributions and certain individual retirement account contributions, is used to determine eligibility.
To navigate the complexities of the EITC, the IRS encourages filers to take advantage of resources such as Free File, tax professionals, or the agency’s free tax preparation programs. These tools can help individuals determine their eligibility and maximize their refunds. It is crucial for taxpayers to educate themselves about the EITC, especially when millions of eligible individuals are failing to claim it.
The Consequences of Not Claiming the EITC
The failure to claim the EITC not only deprives taxpayers of much-needed financial support, but it also contributes to a high rate of improper payments. The 2023 Purple Book of legislative recommendations by National Taxpayer Advocate Erin Collins highlighted that millions of eligible taxpayers fail to claim the EITC, while others claim amounts for which they are not eligible. This situation has led to an alarming improper payments rate. The Bipartisan Policy Center’s December report further revealed that EITC claimants face a significantly higher audit rate compared to other U.S. taxpayers, partially due to these improper payments. Consequently, the IRS has allocated significant resources to address this issue.
As tax season approaches, it is essential for Americans to be aware of the valuable earned income tax credit. By understanding their eligibility, seeking resources, and claiming the credit they are entitled to, individuals and families can benefit greatly. The unclaimed billions of dollars in EITC serve as a reminder that taking advantage of available tax credits can significantly improve financial well-being. So, as you prepare your tax return, make sure not to overlook this often underutilized credit.
Leave a Reply