Tax season is upon us once again and, while many American taxpayers will be receiving refunds from the U.S. government, millions more will leave money unclaimed that they are entitled to because they are unaware of a benefit called the Earned Income Tax Credit (EITC).
The EITC is considered one of the nation's most successful anti-poverty initiatives, and is available to low- to moderate-income individuals and families who worked the preceding year. Created in 1975 to offset the burden of increased Social Security payroll taxes on low-wage workers, the intention of the EITC was to move a family with a full-time low-income worker above the poverty line.
For tax year 2014, 27.5 million taxpayers received about $66.7 billion in EITC, while the average refund amount was more than $2,400. In addition, EITC and the Child Tax Credit (CTC) lifted an estimated 9.4 million people out of poverty, including five million children, in 2014. However, one in five eligible Americans are unaware they qualify and do not claim EITC, losing out on additional monies they could use for saving, paying down debt, covering an emergency expense or simply making ends meet.
For the past 10 years, National Disability Institute (NDI) and the IRS have teamed up with community partners in more than 110 cities in all 50 states to help educate low-income taxpayers with disabilities about the EITC and access to free tax preparation services through Volunteer Income Tax Assistance (VITA) sites. As part of the efforts of the Real Economic Impact Network of NDI, more than 2.4 million individuals with disabilities have benefitted from access to the EITC and other favorable tax provisions and received more than two billion dollars in tax refunds.
Workers at risk for overlooking the EITC include those:
• Who have disabilities or are raising children with disabilities;
• Living in non-traditional homes, such as a grandparent or raising a grandchild;
• Whose earnings declined or whose marital or parental status changed;
• Without children;
• With limited English skills;
• Living in rural areas;
• Who are Native American; and
• With earnings below the filing requirement.
Benefits such as Social Security Disability Insurance, SSI, or military disability pensions are not considered earned income and cannot be used to claim the EITC. You may qualify for the credit only if you, or your spouse, are filing a joint return and have other earned income.
Besides providing additional income, the EITC provides a financial incentive for workers to stay employed and increase their earnings. According to recent studies, EITC provides significant work, income, educational and health benefits to its recipients and their children. Research indicates that children of EITC recipients do better in school, are more likely to attend college and earn more as adults.
Many individuals with disabilities or persons with children with disabilities qualify for the Earned Income Tax Credit, but many are unaware of this benefit or that they are qualified to claim it. With one in five of the American population identifying as a person with a disability, and one in three living in poverty, the Earned Income Tax Credit and free tax preparation services, such as MyFreeTaxes.com, are vital to the financial health of Americans with disabilities.
In 2015, according to the Internal Revenue Service (IRS), more than 448,000 tax returns were prepared for persons with disabilities, a three percent increase from the previous tax year. Of those returns, 143,419 claimed the Earned Income Tax Credit resulting in $68.1 million in EITC refunds, with overall tax refunds more than $441 million for persons with disabilities. In addition, taxpayers with disabilities saved more than $98.6 million in tax preparer fees in 2015.
The Earned Income Tax Credit is oftentimes overlooked by the disability community, and tax preparers who support persons with disabilities, because they may not fully understand the rules of eligibility when claiming the EITC. For instance, it is a misconception that you can only claim this benefit if you have children. There are additional rules that could potentially make an individual eligible who does not have a qualifying child, such as:
•You (or your spouse if filing jointly) must be at least age 25, but under age 65;
•You (or your spouse if filing jointly) cannot qualify as the dependent of another person; and
•You (or your spouse if filing jointly) must have lived in the U.S. more than half the tax year.
The Earned Income Tax Credit is a pathway out of poverty for millions of Americans. It is up to all of us - community organizations, elected officials, state and local government agencies, schools, employers and individuals to raise awareness among those who would benefit most from the life-changing, transformative effect of the Earned Income Tax Credit.
For more information on EITC, please visit the IRS website. To see if you qualify, please use the IRS EITC Assistant.
EITC has made a difference in the lives of countless Americans with and without disabilities. NDI will continue to work to ensure that more taxpayers have access to this frequently overlooked and underutilized tax credit.
Access to the EITC is just the first of many steps individuals with disabilities can take to build a customized path for a better economic future. Through diverse education, training and outreach activities, NDI is helping change expectations about work, income production and saving and asset building for people with disabilities and their families to become more financially capable and economically secure.