THE BLOG

January 31 is IRS' EITC Awareness Day

01/29/2014 11:59 am ET | Updated Mar 31, 2014

Earned Income Tax Credit, also called EITC or EIC, is a tax credit designed to help low-to- moderate income working individuals and families keep more of their money. The IRS estimates one of five eligible taxpayers leave the Earned Income Tax Credit off their tax return, leaving potential refund off their tax return . EITC Awareness Day aims to ensure everyone gets the EITC they are eligible for. So let's take a quick look at what the EITC is and who qualifies for the credit.

The original form of the credit started in 1975 as a way to offset the burden of Social Security taxes on lower and moderate-income taxpayers, and to provide an incentive to work. Today the EITC is one of the largest anti-poverty programs within the federal government, lifting more than 6.6 million taxpayers and their children out of poverty in 2011.

There are 15 rules used to determine eligibility for the credit. The actual amount of credit is based on your total earned income and adjusted gross income, the size of your family and your marital status. The reality is there are really only about two things you need to know. First, you need to have earned income, from a job or self-employment. Secondly, your income level needs to be moderate-to-low in order to qualify. After that the other rules really determine how much credit you get.

The maximum credit of $6,044 is available if you work, have three or more qualifying children, and have an earned income and adjusted gross income of less than $46,227 or $51,567 if married filing jointly.

EITC is a refundable credit, which means you can still get a credit and tax refund after your taxes are satisfied. Keep in mind that to qualify, you must have earned income. -. Taxpayers who also have "unearned" income, like unemployment compensation, will not receive an increase in EITC, but they may see their total credit amount reduced because their "unearned" income increases their adjusted gross income.

Families with qualified children are eligible for the higher credit amounts and married couples filing jointly are eligible for the credit under higher income ranges. So a taxpayer with three children who files a joint return will be eligible for the credit as long as their earned income and adjusted gross income are less than $51,567. A Head of Household or Single taxpayer with three children will be eligible as long as their earned income and adjusted gross income are less than $46,227.

While you can qualify for the credit if you are single or married filing jointly with no children, your credit amount is significantly lower with a $487 maximum amount and the income limits are only $19,680 if married filing jointly and $14,340 if Single.

The other rules covering the EITC relate to Social Security numbers, where you and your qualified children live, how much investment income you receive, and the relationship of another taxpayer vs your relationship with a qualifying child.

Most taxpayers who qualify for the EITC also qualify for the Additional Child Tax Credit--and even more tax benefits. This credit is another refundable credit that allows a taxpayer to claim any unused Child Tax Credit (a credit of $1,000 per eligible child), as a refundable credit on their tax return. The Child Tax Credits are available for many more taxpayers than the EITC because the maximum income limits to claim these credits is much higher. The Child Tax Credits start being reduced when modified adjusted gross income exceeds $75,000 ($110,000 if married filing jointly and $55,000 if married filing separately). There is no limit on the number of eligible children or maximum credit amount, so if you have five eligible children, your credit before any reductions will be $5,000.

Since any excess refundable credits (the amount left after all taxes on the tax return are satisfied) are included in your refund amount, the Additional Child Tax Credit and the EITC can help boost the taxpayer's overall tax refund and help out financially where needed most.

As you can see, the Child Tax Credits are a big help to most taxpayers, where the EITC is a big help to lower income, working taxpayers. Combined, these credits are a powerful tax benefit to those who qualify. If you're wondering if you qualify, or think you might, be sure you have someone knowledgeable review your tax return and EITC eligibility and to make sure you claim the full amount available. One of five miss the EITC and should not. Do not be the one.