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The Tax Break That Millions Miss Out On

Tax breaksThere's a popular tax break out there that paid more than 26 million workers a total of nearly $59 billion last year. Yet as many as 1 in 4 of those who qualify for this tax credit failed to claim it, missing out on hundreds, or even thousands, of dollars.

That break is the earned income tax credit. Designed to help low- and middle-income wage earners make ends meet, the credit helps reverse the effect of payroll taxes. Despite the best efforts of community organizations and various government agencies, however, the credit doesn't reach some of the families who need it most.

What You Need to Know

The earned income tax credit covers families of various sizes, with different income limits and credit maximums. Joint filers with three or more children are eligible if they earn less than $49,000, with a maximum credit of about $5,750. Smaller families have slightly lower income limits and credit amounts, and even if you don't have any children, you may be entitled to up to $464 if you earn $13,660 or less and are single or $18,740 for married couples.

The key to the earned income tax credit is that you have to have income from a job or business. Interest and dividends, Social Security payments, and unemployment benefits don't count for claiming the credit.

But what many don't realize is that you can get cash back from the credit even if you don't owe tax. That's unusual for a credit, but it's what makes the earned income tax credit especially valuable for those who are struggling to make ends meet.

The problem with the credit is that it's fairly complicated, with various rules that can make it hard to figure out if you're actually eligible. But with that in mind, the IRS set up a quick eligibility quiz. Of course, many low-income taxpayers don't have access to computers, so getting everyone eligible to claim the credit will continue to be difficult.

Get What You Deserve

So be sure to check and see if you're eligible for the earned income tax credit. In tough times, some extra money can make all the difference.

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Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

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Step back for a moment and read this article like you were doing your taxes for the first time. A million monkeys in a million years couldn't design a system more aas backwards than this one.

April 05 2012 at 10:30 AM Report abuse rate up rate down Reply

To get this deduction do you have to itemized or is there a line on the 1040 form to put it in?

March 28 2012 at 9:04 AM Report abuse rate up rate down Reply

Am I eligible for earned income credit if I only earned my social securiatay retirement of 10,880 and a small salary of roughly 5,000. I also still had a child at home for 6 months of the year.

March 24 2012 at 10:43 PM Report abuse rate up rate down Reply

This article is somewhat misleading. Recently the Justice Department on evidence from the IRS arrested 90 people for identity theft and EITC fraudt. EITC is the most common area of tax fraud, with people claiming dependants that are not really dependents. There is no statistic that I have heard of (and I get about 10 emails a day for IRS subscriptions) that 1/4 eligible taxpayers don't claim it. The link to the webpage for the IRS EITC "wizard" is http://www.irs.gov/individuals/article/0,,id=130102,00.html

March 24 2012 at 10:04 PM Report abuse rate up rate down Reply

Ah yes the Negative Tax. This as well as all other forms of Welfare need to be driven from our tax code.

If somebody needs a helping hand then write them a check and let them know it is from their neighbors who are generous enough to help somebody out.

March 24 2012 at 9:39 PM Report abuse rate up rate down Reply

$LiM - if you got more money back than you paid in, you did not pay taxes! The very title of the program is an oximoron. If something is given to you, you did not earn it.

March 24 2012 at 9:36 PM Report abuse rate up rate down Reply

i own 12 sect 8 houses i talk and listen to my low income tenants. the scams they have are unbelievable.
first off if one worked and one dident they would offer to sell the rights to the person who worked to claim them on their taxes. when one goes to jail and they have children a family member will care for the children and become foster parents earning about 500 per month per child, when the person gets out of jail the person whos getting the 500 per child tells the state the mother ha sabounded the children and is out on the streets doing drugs. they then continue to get the money from state split it with the parent who really is living at home home the children alla big scam
theres so much more going on than most working "normal amercians dont know about

March 24 2012 at 9:35 PM Report abuse rate up rate down Reply

The author's conclusion is wrong. For tax year 2010, Turbo Tax told me I was not entitled to this credit so I did not declare. The IRS increased my refund by the amount of the credit and sent a letter explaining that I had failed to take the earned income credit. So, Mr. author, even if you fail to include the credit on your return, the IRS will probably correct the error and still give you the credit.

March 24 2012 at 9:30 PM Report abuse rate up rate down Reply

Type your comment here
u demo dopes dont get it. my daughter with 3 kids is on welfare she worked part time last year made $3900
last year paid 347 in taxes got a refund from irs for $4726.00 its 100% charity

March 24 2012 at 8:42 PM Report abuse rate up rate down Reply

Just so I don't have to repeat myself......The earned income credit was established by the REPUBLICANS in the 70's. GOOGLE IT!

March 24 2012 at 8:14 PM Report abuse rate up rate down Reply
1 reply to sadiemae1214's comment

yes that is why we are in process of driving out the RINOs.

March 24 2012 at 9:41 PM Report abuse rate up rate down Reply