One of the key work incentives for individuals and families who earned $51,567 or less last year is the Earned Income Tax Credit (EITC) which allows low and moderate income workers to keep more of what they earn. It’s also the federal and MA refundable tax credit that is most often missed. The IRS estimates that four out of five eligible workers and families get the credit, but millions who could claim it don’t.
Last year more than 27 million workers and families received more than $63 billion in EITC. In Massachusetts, which gives taxpayers who qualify for the federal EITC, 15% of what they received from the federal amount, 425,000 workers claimed the state EITC and received $125.5 million or around $295 per filer.
The amount of EITC varies depending on filing status, income and family size. The IRS has an online EITC calculator www.irs.gov/eitc to help taxpayers and tax preparers determine if they are eligible and estimate their EITC. The refund can range from up to $487 for workers without children (including the self-employed and farmers) and a maximum credit of up to $6,044 for those with three or more qualifying children. Even if a taxpayer didn’t qualify last year for EITC, they should always check their eligibility, especially if personal circumstances have changed.
To get the federal EITC you must file a tax return even if you are not otherwise required to file a return or do not owe any tax. Once a taxpayer gets the amount of the federal EITC they can enter it on line 40 on the Massachusetts state return and multiply by 15%. Taxpayers filing for MA EITC must also include Schedule DI which lists information on qualifying children.
Even if the EITC claim is prepared by a tax preparer, taxpayers are still responsible for the accuracy of the return. Beware of any scams that claim taxpayers don’t need documentation to back up the claim or promises they can increase the amount of the EITC. Scams that create fictitious qualifying children or adjust income levels to get the maximum EITC could leave taxpayers with a penalty.
Every year, the Massachusetts Department of Revenue asks selected taxpayers to verify the EITC claim by requesting such documents as social security cards for qualifying children, receipts, bank account statements and cancelled checks and expense sheets for taxpayers who may be self-employed. All information is then shared with the IRS to be sure that only those workers who are eligible get the credit and the right amount of the refund.
So be sure to claim the EITC if you’re entitled to it, but keep good records to verify your claim.