Most people would be thrilled to get thousands deposited in their bank accounts. And yet, 20 percent of individuals eligible to receive that amount through the Earned Income Tax Credit (EITC) miss out on it.
The reason? Most people just don’t know about it. Tax time is approaching fast, so it’s important to make sure you understand what EITC is and how to claim it.
What is the Earned Income Tax Credit?
For many people, working full-time is not enough to pay for all the necessities and bills. For them, the EITC provides significant relief at tax time. Created in 1975, the EITC lowers families’ tax burdens and may actually provide a boost to their income.
Those who do not make a lot of money can get a decreased tax bill, pay no tax, or even get a large refund. You do not have to have children; you just have to work in the previous year to be eligible.
The EITC is a refundable tax credit, which means that it can reduce the amount you owe to the federal government to zero and the unused amount is refunded to you. But the only way to claim the credit is if you specifically file for it on your taxes.
How does the EITC benefit people?
Families can use the credit to boost their savings, pay down debt, or cover any other necessary expenses. For low- to moderate-income households, it’s a big help to meet their needs.
The average EITC recipient received $2,482. In 2016, 26 million people received $65.6 billion through EITC. Some states have similar credits offered to residents which are combinable with EITC, which means that families can get thousands back.
Additionally, the EITC is retroactive, meaning if you were eligible but did not file for it for the previous three years, you can claim it when you file your taxes for 2016.
The impact can be substantial. If a family with three or more children filed for the three years they missed, they could get over $18,000 back.
Yet only four out of five people eligible for the credit actually claim it. That discrepancy is often due to a lack of awareness. Individuals and families who work and are struggling to make ends meet often do not know they are eligible.
Who is eligible for Earned Income Tax Credit?
The qualifications for EITC are simple. To be eligible, you must be a US resident. You must have earned income during the previous tax year and either file as a single individual or married filing jointly.
Those who submit their taxes as married filing separately are not eligible. You need also to fall within the 2016 income limitations on the Earned Income Tax Credit table.
The maximum credits for the 2016 tax year are:
- $6,269 with three or more qualifying children
- $5,572 with two qualifying children
- $3,373 with one qualifying child
- $506 with no qualifying child
To be eligible, you must either have a qualifying child, or be between the ages of 25 and 65. If you’re a student, you can still qualify for EITC as long as no one can claim you as a dependent and you had some income. As long as you file independently and had a job while in college, you can get the credit.
How do I file for Earned Income Tax Credit?
You can only get the EITC if you submit a federal tax return and claim the credit.
If you do your taxes yourself and do not have children, you can claim the credit by filing a Form 1040EZ, 1040A, or 1040. But if you have children, you need to complete the Schedule EIC form with either the form 1040A or the Form 1040.
If you use tax preparation software like TurboTax, the program will prompt you with questions to see if you are eligible for the credit. Many people skip that section because they think they don’t qualify, but go through it to see if you’re eligible for at least some of the credit.
If you want to file your taxes and get EITC for free (and who doesn’t?), you can use Free File, free tax preparation software offered by the IRS. Anyone who makes under $62,000 can use the service without paying a fee.
If you think you need more assistance, don’t pay for tax professionals to help you. You can get free help when filing your taxes by going to a Volunteer Income Tax Assistance (VITA) site.
Staffed by trained professionals, VITA sites offer free, in-person tax filing help to people who make $54,000 or less. To find a location near you, check out the VITA website.
File for EITC
Tax time is just around the corner, and the EITC can help give you some wiggle room in your budget or save you money to make a lump sum payment on your student loans. This year, remember to file for EITC if you qualify and get this valuable tax credit.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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