The Internal Revenue Service (IRS) has issued a reminder that millions of Americans are eligible for a tax credit that averaged more than $2,000 last year, but 20 percent of those entitled to the money have not claimed it.
“This is an extremely important tax credit that helps millions of hard-working people each year,” IRS Acting Commissioner Doug O’Donnell said in a Jan. 27 statement. “But every year many people miss out on credit because they don’t know about it or don’t realize they qualify.”
At issue is the Earned Income Tax Credit (EITC), which Congress first passed in 1975, in part to offset the burden of Social Security taxes and provide an incentive for employment.
The tax credit is administered by the IRS, which said about 31 million eligible Americans received about $64 billion in EITC payments by 2022. The tax credit averaged more than $2,000.
The IRS estimates that about 20 percent of eligible taxpayers do not claim the EITC. People particularly prone to overlooking the tax credit include those living in non-traditional homes (such as a grandparent raising a grandchild), those whose income has fallen, or whose marital or parental status has changed, as have people living in rural areas, veterans, the self-employed and people with income below the required tax return.
“Especially people who have experienced a major change in their lives in the past year — in their job, marital status, a new child, or other factors — may qualify for the first time,” O’Donnell said. “The IRS is urging people to carefully review this important credit; we don’t want people to miss anything.”
The EITC is considered a tax credit for lower-income filers, although there are some variations in income, filing status, and number of dependents that affect eligibility.
The EITC is for employees whose income did not exceed the following limits in 2022:
- $53,057 ($59,187 married filing jointly) with three or more eligible children who have valid Social Security Numbers (SSNs).
- $49,399 ($55,529 married filing jointly) with two eligible children who have valid SSNs.
- $43,492 ($49,622 married filing jointly) with one eligible child with valid SSNs.
- $16,480 ($22,610 married filing jointly) with no eligible children who have valid SSNs.
- Investment income must be $10,300 or less.
Taxpayers who meet the income requirements and have eligible children can receive up to $6,935.
For taxpayers with no dependents, the maximum EITC is $560.
Married but divorced spouses who do not file joint tax returns may also qualify if they meet certain qualifications.
To qualify, people who don’t earn enough to be required to file a tax return must file one in order to claim the credit.
To navigate EITC eligibility, the IRS has a tool called the EITC Assistant that people can use to check their eligibility and how much they can expect to receive.
The IRS recently warned that many taxpayers should expect a smaller refund this tax season because of changes in tax laws. This includes the expiration of pandemic-related stimulus payments and changes to the Child Tax Credit (CTC) that would have otherwise increased repayment balances.
The Recovery Rebate Credit was a way for millions of Americans to receive pandemic relief if they did not receive their full amount through stimulus checks. This credit was available for missing amounts from the first, second and third round of stimulus checks and could only be claimed in the 2020 and 2021 tax returns.
The stimulus checks were discontinued in December 2021 and the missing amounts from the third round could only be claimed on a 2021 tax return filed in 2022. file a return and consider filing an amended return.
The CTC for 2022 tax returns has been reduced to $2,000 per child, compared to the expanded $3,600 for children under 6 and $3,000 for children between 6 and 17 in 2021.
Some taxpayers may be eligible for a Supplemental Child Tax Credit (ACTC), which allows them to receive up to $1,500 from the CTC as a refund on their tax returns.
A tax credit that working parents can use to help cover the costs of childcare or that people with a dependent person of age can use for this purpose will also be lower in 2022.