Whoa! You got how much back?
So, it's EITC Awareness day and I know you're like, what in the world is that? EITC stands for Earned Income Tax Credit. This is a refundable tax credit for lower income earners that may significantly increase their potential tax refund. What is a refundable credit? A credit is refundable if you can still get the credit (and a refund) even if you owed ZERO in taxes. Nonrefundable credits only reduce the amount of TAX you owe. So if you owe $600 in taxes and you are eligible for a nonrefundable $1000 credit, you'll only get $600 of that credit. The other $400 is forfeited.
Eligible families with three or more qualifying children could get a maximum credit of up to $6,431. There has always been a misconception that you can only claim 2 children on a tax return and that is false. You can claim as many children as you have but will only get the EITC for up to 3. Unfortunately, this is what makes people shop around for someone to claim their "extra" dependents. 🤔 Hey, I'm just the messenger. 🤷♀️
Even people without children are eligible to claim the EITC and could get up to $519 added to their tax refund if they made less than $15,270. Check out the table below for maximum income limits and credit amounts for the 2018 tax year. This credit works on a curve, so know that if you have 1 child, you are not automatically entitled to a $3,461 credit, but UP TO that amount depending on the amount of income you EARNED.
There are additional eligibility requirements for this credit, it's not based ONLY on income and dependents but your tax preparer should be able to explain that. Or you can go directly to the IRS website and use their EITC assistant to determine your eligibility.
So next time you hear someone say they received a $8,000 tax refund, and you're like "how sway 👀?" Just know, they likely received earned income tax credit (and other available credits), or paid in a lot of taxes during the year. Also, know that if they have 2-3 children and made less than $45k, they were also likely struggling to make ends meet most of the year. Last time I checked, kids were EXPENSIVE so I can only imagine. A lot of times we are so quick to judge (myself included) and hating on these huge refunds because we did not get them. But maybe we should be grateful for having the money during the year to adequately provide for our families.
Another thing to note is this particular credit is generally one of the top contenders when it comes to tax fraud because of the huge potential refunds. Tax return preparers are required to do due diligence and ask questions to determine eligibility. Also, if the IRS finds that you improperly claimed this credit (through an audit or other means) you will be DISALLOWED to claim the credit for the next 10 years.... it's simply not worth it.
As I mentioned before everyone's tax situation is DIFFERENT and it truly depends on all of the various factors in your tax return. Just because you have 2 children just like your friend and she got $7,000 back does not mean you will. It all depends on how the numbers add up, figuratively and literally. Let me know if this was helpful in the comments below!
Until next time,