Tax credits mystify many Americans, if only because it's hard to know which ones they qualify for and why. They're worth having because they provide meaningful savings on a filer’s overall tax contribution and in some cases lead to a tax refund.
One of the most beneficial credits for families with low or moderate incomes is the Earned Income Tax Credit (EITC). It was established to offset the burden of Social Security taxes and provide an incentive to work. Experts of financial planning and taxes recommend all filers explore their eligibility for receiving the EITC.
"It is an overlooked credit all too often," says Sandy Zinman, committee chairman for the National Conference of CPA Practitioners. "If you're not earning a whole lot of money but are working, you can end up getting back more money than you pay in."
Here are five facts about the Earned Income Credit that should clarify some of the simpler mysteries of the credit.
“Just because you didn’t get it last year doesn’t mean you won’t get it this year. This economy has been rough on a lot of people. A lot of people’s tax situations can change in a year. Tax laws change. … You should check every year.”
- Louis Barajas, financial planner and author, Santa Fe Springs, California