The IRS is accepting filings for the Earned Income Tax Credit, a refund for low-income workers and successful U.S. anti-poverty program. Filing sooner is better, an analyst says.
Families and individuals planning to file for the federal Earned Income Tax Credit – one of the federal government’s most powerful tools for lifting millions of Americans out of poverty – are encouraged to do so early in the 2019 tax filing season.
One reason: The recent 35-day partial shutdown of the U.S. government raised concerns about full staffing levels and normal processing operations because of the closure at federal departments and agencies, including the Internal Revenue Service (IRS).
“As soon as they get their returns in, the faster it will get in front of someone at the IRS and get moved along in the process,” said Elaine Maag, a senior research associate who specializes in safety net issues at the Tax Policy Center in Washington, D.C.
The EITC, as it’s known, is a tax refund that puts extra money in the pockets of lower-income working families and individuals, particularly those raising children.
The EITC and federal child tax credit account for lifting “more people out of poverty than any other government program besides Social Security,” Maag wrote in a Tax Policy Center blog post on Jan. 14, citing U.S. Census Bureau data.
She wrote that in 2018 alone, the U.S. government paid Americans $300 billion in tax refunds. Refunds related to the EITC and child tax credit, known as the CTC, made up about $100 billion of that amount. Taxpayers file for the CTC when they submit their federal tax returns and claim the EITC.
Some families who file for the EITC and have two or more children can see refunds – or credits – of about 10 percent of their yearly earnings. But as Maag pointed out: “Because of the EITC and CTC, some low-income parents receive a bump in annual income of over 50 percent and many get refunds that exceed a month’s income.”
That money can help families pay for food, housing, medicine, health care, transportation and school-related expenses.
The IRS began accepting tax returns on Jan. 28. The federal tax filing deadline for most people is April 15, but residents in Maine, Massachusetts and Washington, D.C. have extensions.
With the 2019 tax filing season underway, Equal Voice News is providing this general FAQ about the EITC for families and individuals.
How does the tax credit work?
Here’s how it works, using an example from 2017. For a single working parent with two children, the first dollar earned in the tax year is credited 40 cents, up until the first $14,040 of annual income. After that, additional earnings don’t reduce your credit, until you hit $18,340 in annual income. At that point, each additional dollar earned reduces your credit by about 21 cents, until the credit zeros out at income greater than $45,007.
One of the trickiest parts of the EITC for the tax filer is determining who qualifies as a dependent child. For anyone claiming dependent children under the program, the IRS requires Schedule EIC, which walks you through determining who qualifies. A critical point is that the child must have lived with you for more than six months of the year, even if you paid most of the child’s living expenses.
How much tax credit can be claimed?
The maximum amount of the EITC you can claim for tax year 2018 is: $6,431 with three or more qualifying children, $5,716 with two qualifying children, $3,461 with one qualifying child, and $519 with no qualifying children. If the EITC amount you qualify for is greater than your total tax liability, the government pays the difference back to you.
Why does the EITC exist?
“The EITC is set out to encourage work, and also boost the earnings of low-income workers,” said Hunter Blair, a budget analyst with Economic Policy Institute, a progressive think tank. “It incentivizes people who are low-income workers to work more hours and incentivizes people who are not in the labor force to enter the labor force.”
The EITC started in 1975.
How many Americans benefit from the EITC?
During 2018, 25 million eligible workers and families received about $63 billion in tax credits under the EITC. The government estimates these working-family tax credits lifted 9.4 million people out of poverty, including at least 5 million children.
The U.S. Census Bureau counted 39.7 million people in the country who were living in poverty in 2017, the last year in which there is full official data.
The U.S. government uses its “poverty thresholds” definition, which is updated yearly, to determine this number. For example, in 2019, the poverty threshold for a household of four people is $25,750 in yearly earnings. The threshold for a household with one person is $12,490 in yearly earnings. For two people, it is $16,910 in annual earnings.
What are some other benefits of the EITC?
Tax Credits for Workers and Their Families reports the EITC also advances equity by narrowing gender and racial wealth gaps, improves educational and health outcomes – particularly for pregnant women and babies – and offers a form of support to U.S. military families and veterans.
How do I know if I qualify for the EITC?
The IRS lists qualifications, such as having a valid Social Security number and being a U.S. citizen or resident alien for the full year. The IRS also has information about qualifying children under the EITC.
If I qualify and file for the EITC, when will my refund arrive?
Feb. 27 is the earliest an EITC-related refund will arrive in a taxpayer’s bank account or on his or her debit card, according to the IRS. People can check the status of their refund on the IRS website or via the IRS mobile app.
Do all qualifying workers apply for the EITC?
No. The IRS estimates 1 in 5 of all eligible workers do not file for the credit. The IRS and nonprofit organizations encourage spreading the word about this anti-poverty program so that all eligible workers apply.
Among those who typically do not apply are residents in rural areas, grandparents raising their grandchildren, the self-employed, people who are not proficient in English and those who receive disability pensions.
Can I apply for the federal EITC for past years if I didn’t do so?
Yes. Even if you missed out on filing for the EITC in previous years, or didn’t file taxes at all, you can still file for a refund back to tax year 2014.
Do states and cities offer an EITC?
Yes. In addition to the federal EITC, 24 states plus New York City and Washington, D.C. offer tax credits for qualifying low-income workers. The majority of them are refundable, meaning the government will pay out any credit in excess of the taxpayer’s liability. To see if you qualify, the IRS publishes a full list of state and local EITC policies.
Is it worth applying for the EITC through a tax processing company?
“No one can get you your refund faster than you can going through the IRS,” Maag said.
There is concern, she and others have said, about low-income families taking out quick loans to pay a third-party company to submit federal tax returns and file for the EITC on their behalf. Families can get trapped in high-interest loan rates that create debt for months or years to come.
What about the EITC and childless workers?
One of the key criticisms of the EITC is how tilted it is in favor of low-income workers with children, as opposed to childless workers, who qualify for a maximum credit of just $519. A childless married couple filing jointly had to make less than $20,950 to qualify for any refund under the EITC in 2018.
“There has been, in the past at least, bipartisan claims that it’s something important to be doing something toward increasing the EITC for childless workers,” Blair, of Economic Policy Institute, said.
Does the EITC have bipartisan support among elected officials?
Yes. It has received bipartisan support as an anti-poverty measure since it was first rolled out in 1975. There also has been discussion about expanding the EITC at the state and federal levels
California Gov. Gavin Newsom is considering doubling that state’s EITC, and some 2020 presidential candidates have anti-poverty proposals that contain stronger EITC credits, according to reports in Vox.
Brad Wong is communications manager at Marguerite Casey Foundation. Keith Griffith is a journalist in New York City. Equal Voice is Marguerite Casey Foundation’s publication featuring stories of America’s families creating social change. With Equal Voice, we challenge how people think and talk about poverty in America. The text of this Equal Voice story and photos by Mike Kane can be reproduced for free, as long as proper credit and a link to our homepage, are included. Parts of this story appeared on Equal Voice in 2018.
2019 © Marguerite Casey Foundation