TurboTax / Tax Calculators & Tips / All Tax Guides / General Tax Tips / Tax Tips for Low-Income Filers

Tax Tips for Low-Income Filers

Updated for Tax Year 2016


OVERVIEW

If you're a low-income filer, you might be entitled to various tax credits and deductions for which other taxpayers don't qualify.


The U.S. Tax Code is structured to provide assistance to lower-income taxpayers. As a low-income filer, you might be entitled to various credits and deductions for which other taxpayers don't qualify. Certain behaviors in particular, such as having children or making retirement plan contributions, are rewarded. However, these incentives phase out when taxpayers reach a higher income level.

Retirement saverings contribution credit

A little-known provision allows certain lower-income taxpayers to receive credits for making retirement plan contributions. The amount of the credit ranges from 10 percent to 50 percent of the first $2,000 that you put into a retirement plan, such as an individual retirement account (IRA). As of 2016, you could get the maximum 50 percent credit if your adjusted gross income was $18,500 or less.

The amount of the credit steps down at various income levels depending on your filing status. For a single filer, an AGI exceeding $30,750 in 2016 would make you ineligible to claim the credit. If you're married and filing jointly, the limit rises to $61,500.

Earned income tax credit

The earned income tax credit (EITC) is available exclusively for lower- and middle-income taxpayers. Unlike some other credits, the EITC is refundable, meaning you still receive it even if it's more than you owe.

For example, if you owe $200 in taxes but qualify for a $1,000 EITC, you'll actually receive $800 as a tax refund. Generally, you need one or more qualifying children to receive the credit, although it's possible to get the credit as an individual.

For 2016, you must have an AGI below the following levels to qualify for the EITC:

  • with three or more qualifying children, $47,955, or $53,505 if married filing jointly
  • with two qualifying children, $44,648, or $50,198 if married filing jointly
  • with one qualifying child, $39,296, or $44,846 if married filing jointly
  • with no qualifying children, $14,880, or $20,430 if married filing jointly

The maximum credit you can receive also varies based on the number of qualifying children you have. For 2016, the following maximums are in place:

  • $6,269 with three or more qualifying children
  • $5,572 with two qualifying children
  • $3,373 with one qualifying child
  • $506 with no qualifying children

Credit for the elderly & disabled

As a low-income taxpayer, you may qualify for the credit for the elderly and disabled. In addition to qualifying based on income, you must meet one of two additional criteria -- you must either be age 65 or older at the end of the year, or you must have retired on total and permanent disability and have taxable disability income.

If your AGI is equal to or exceeds the following limits, you cannot qualify for this credit:

  • $17,500, if you're single, head of household, or a qualifying widow(er) with dependent child
  • $20,000, if you're married filing jointly and only one spouse otherwise qualifies
  • $25,000, if you're married filing jointly with both spouses qualifying
  • $12,500, if you're married filing separately and lived apart from your spouse for the entire year

You also cannot take this credit if your nontaxable social security or nontaxable pension, annuity or disability income exceeds certain limits. Those limits are $5,000 for the first two filing categories above, $7,500 for the third category, and $3,750 for the final group.

IRA contributions

The IRS will allow you to take an IRA deduction as a low-income taxpayer, even if both you and your spouse are covered by retirement plans at work. There are limits that can restrict the deductibility of your contribution in certain cases, but those limits are well above the level of a low-income taxpayer.

For example, in 2016 if you were a single filer covered by a retirement plan at work, you could still deduct your full IRA contribution with a modified adjusted gross income as high as $61,000. The single-filer deduction phases out as your income increases to $71,000. As a couple filing jointly, the limit would jump to $98,000, with the deduction phasing out as your joint income reaches $118,000.

The only time a low income might cause problems with your IRA deduction is if you are married and filing separately. In that instance, you can't take a full deduction on an IRA contribution, regardless of your coverage at work. You could take a partial deduction with an MAGI of up to $10,000 only. Beyond that, you couldn't take any deduction at all.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99$34.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/1040A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected in March. Special discount offers may not be valid for mobile in-app purchases.
  • QuickBooks Bonus Offer with TurboTax Self-Employed: File your 2016 federal return with TurboTax Self-Employed by 4/18/17 and receive a complimentary subscription to QuickBooks Self-Employed until 4/30/18 at no additional cost. After you file your taxes, you must activate your QuickBooks Self-Employed subscription by 7/15/2017 by logging into QuickBooks Self-Employed via mobile app or at https://selfemployed.intuit.com/login. Once activated, you will have access to QuickBooks Self-Employed until 4/30/2018.
    Offer valid only for new QuickBooks Self-Employed customers.
    • When you use TurboTax Self-Employed to file your 2017 taxes, you will have the option to renew your QuickBooks Self-Employed subscription. If you do not file with TurboTax Self-Employed by 4/30/2018, your QuickBooks Self-Employed subscription will automatically renew on 5/1/2018 for another year at the then-current annual subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section.
  • Pays for itself: In order to pay for the price of TurboTax Self-Employed, you will need at least $600 in deductible business expenses. This calculation is based on the self-employment tax income rate for tax year 2016.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Expert Help, Tax Advice and SmartLook: Included with Deluxe, Premier and Self-Employed (via phone or SmartLook); not included with Federal Free Edition. Feature availability varies by device. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • TurboTax Self-Employed Expense Finder: Available only in TurboTax Self-Employed. Not available for people with certain types of expenses and tax situations including paying contractors or employees, home office or vehicle actuals, inventory, self employed health insurance or retirement, asset depreciation, sale of property or vehicles, and farm income. Some financial institutions limit the timeframe for which historical transactions may be imported by ExpenseFinder. ExpenseFinder expected late January (late February for mobile app).
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected in March. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Data Import: Imports financial data from participating companies. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2015 and higher) and QuickBooks Desktop (2011 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.