A:

According to the IRS, over 22 million taxpayers received $41.4 billion dollars in earned income tax credit (EITC) for tax year 2005. On the other hand, it was not claimed by approximately 20 to 25% of eligible taxpayers.

The EITC goes toward reducing eligible taxpayers federal taxes, or increase the amount of refund due and can be up to $4,500 for the year. This can be a significant amount, especially for individuals with lower income.

Eligibility for the EITC includes filing a tax return, and meeting requirements which include the following:

  • You have earned income from employment or from self-employment.
  • You earned less than $12,120 ($14,120 if married filing jointly) and did not have any qualifying children.
  • You earned less than $32,001 ($34,001 if married filing jointly) and have one qualifying child.
  • You earned less than $36,348 ($38,348 if married filing jointly) and have more than one qualifying child.
  • You have a valid Social Security Number.
  • Your filing status is not married filing separately.
  • You were a U.S. citizen or resident alien for the entire year, or a non-resident alien married to a U.S. citizen or resident alien and filing a joint return.
  • You cannot be a qualifying child of another person.
  • You cannot file Form 2555 or 2555-EZ (related to foreign earned income).

The IRS has indicated that millions of taxpayers claim the EITC in error. Check to determine if you are eligible by using the IRS' EITC Assistant, which is available in English and Spanish. The EITC Assistant can also be used to determine the amount for credit an eligible taxpayer will receive. Additional information about the EITC is available in IRS Publication 596.

To read more frequently asked tax questions, see How can I make sure I'm ready to file my taxes?, Common Tax Questions Answered and How can I use a child-tax credit?

RELATED FAQS
  1. Are there special benefits for U.S. armed forces personnel?

    If you are a member of the military, you may be afforded special tax benefits that might not be available to other taxpayers. ... Read Answer >>
Related Articles
  1. Taxes

    This Explains $0 Federal Income Tax for Millions

    Understand how the earned income tax credit works and whether it applies to you.
  2. Taxes

    Obama's Minimum Wage and EITC Proposals - What Taxpayers Should Know

    Investopedia explains: In his State of the Union address, President Obama outlined two proposals - a minimum wage increase and an Earned Income Tax Credit (EITC) expansion - that could boost ...
  3. Taxes

    Should Married Taxpayers File Together?

    Married couples that file a joint tax return can enjoy several credits and benefits that aren’t available when filing separately.
  4. Taxes

    5 IRS Audit Triggers to Avoid on Your 2016 Return

    These items on your 2016 taxes could make the IRS decide to audit you.
  5. Personal Finance

    Tax Credits That Can Get You a Refund

    Here are a few of the credits that may result in a refund check, even if you owe no taxes this year.
  6. Taxes

    20 Tax Changes You Need To Know About

    Don't miss out on the tax changes. Here's a list that you need to know about.
  7. Taxes

    How Obamacare Is Raising Your Taxes

    There are literally dozens of new, amended or broadened tax provisions under the Obamacare legislation. Find out how your taxes will be affected in the years to come.
  8. Taxes

    Are You Eligible For the Earned Income Tax Credit?

    Earned income tax credits in the United States decrease taxes owed on a dollar-for-dollar basis.
  9. Personal Finance

    The 10 Most Common Tax-Filing Mistakes

    Be sure to double check your federal income tax return for these common mistakes that could cost you time and money.
  10. Taxes

    Tax Credits And Deductions For Parents

    Your children can help you save on your taxes with these credits and deductions.
RELATED TERMS
  1. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household ...
  2. PATH Act

    The Protecting Americans from Tax Hikes (PATH) Act was created ...
  3. Joint Return

    A U.S. income tax return filed on behalf of a married couple, ...
  4. Child Tax Credit

    A credit given to taxpayers for each dependent child that is ...
  5. IRS Publication 524 - Credit For The Elderly Or The Disabled

    A document published by the Internal Revenue Service (IRS) providing ...
  6. IRS Publication 972: Child Tax Credit

    A document published by the Internal Revenue Service (IRS) that ...
Hot Definitions
  1. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  2. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  3. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  4. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  5. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  6. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
Trading Center