Spring has arrived, bringing many welcomed things—milder temperatures, flowers, and more daylight. A less welcome sign of the season? Taxes are due. Even though taxes help pay for the services we all use, no one looks forward to parting ways with any of their hard-earned money.
However, if you are in the low-to-moderate income tax bracket, you likely qualify for EITC, a program that can save you money and help you get ahead.
EITC (Earned Income Tax Credit) is one of the most significant opportunities to get a break on your taxes by cutting the amount of tax you owe. This important tax credit program has been around for decades, but most don’t know about it. It can provide you with a refund and, in some cases, a refund that’s more than what you paid in taxes.
Today, EITC is one of the largest anti-poverty tools in the United States.
7 Ways the EITC Can Help Break the Cycle of Poverty
- EITC is an effective anti-poverty tool.
Approximately 5.6 million people were lifted out of poverty in 2018 through the program, including nearly 3 million children. EITC also reduced the severity of poverty for 16.5 million people in 2018.
- EITC helps families afford necessary expenses.
Many families in the low-to-moderate income tax bracket use their tax refund to pay for living expenses such as home repairs and car repairs. They may also use it to afford additional education or training to increase their job and earning prospects. These expenses can help families find and maintain employment.
- EITC reduces evictions.
As businesses closed and workers were laid off due to the pandemic, eviction became a major concern. Even before the pandemic, many families used their EITC refund to pay back-rent.
- EITC encourages and supports work.
Many studies have proven that EITC encourages work and is especially effective among single mothers who work in jobs that pay low wages.
- EITC improves long-term outcomes for children.
Children whose families receive EITC have better economic, educational, and future earnings. For example, when families who receive credits have shown several positive long-term benefits for their children, such as improved test scores, an increased likelihood of attending college, and an increased chance of earning higher wages as adults.
- EITC helps promote racial equity and reduces poverty for communities of color.
A disproportionate number of people of color work in jobs that pay a low wage and EITC can help bridge the financial gap that workers of color face. Federal and state EITC serve a larger proportion of people of color than those who are white, lift a larger share of people of color out of poverty, and help families of color build wealth.
- EITC benefits the local economy.
Because many families spend their EITC at local businesses, it can spur economic growth and jobs in the communities where they live.
Is your household one of the millions who didn’t get EITC money?
You Qualify for EITC if . . .
- You, your spouse, and any qualifying children have Social Security numbers.
- You do not file using the married filing separately status.
- Your investment income for the year is less than $3,450.
- You have at least $1 in earned income for the year (including wages, salaries, tips, and other pay earned from employment, self-employment income, and long-term disability benefits).
Updates on Coronavirus Tax Relief and its impact on EITC
- Tax Due Date
Individual taxpayers can postpone federal income tax payments for the 2020 tax year to May 17, 2021, without penalties and interest, regardless of the amount owed.
- EITC Changes
- The American Rescue Plan Act (H.R. 1319) makes several changes to EITC for 2021:
- The applicable minimum age has been decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18). The maximum age has been eliminated.
- The credit phaseout percentage has been increased to 15.3%, and the phaseout amounts have been raised.
- The credit is now allowed for certain separated spouses.
- The threshold for disqualifying investment income has been raised from $2,200 to $10,000.
- Temporarily, you can use last year’s to calculate your credit amount.
How Do I Receive My EITC?
CWF can help you determine if you qualify for EITC when you file your taxes at no charge!
Tax preparation is confusing and frustrating to most of us. It’s downright complicated and nerve-wracking! Working families and individuals in Southeastern Pennsylvania and Southern New Jersey earning less than $60,000 per year can get free professional help from an IRS-certified CWF tax preparer who will help you eliminate that stress. Get started with one of our IRS-certified tax professionals right away!