The EITC: The "Tax Loophole" for the Working Poor

Everyone knows that wealthy folks can do a lot to reduce their taxes through loopholes and tax breaks. But did you know that a tax credit exists just for the working poor?

Ok, so it's not exactly a loophole in that it's intentional. It was created specifically to give low income folks a break.

What's the big deal about the EITC?


-It stands for Earned Income Tax Credit. It was created to give a special tax break to people who work but don't make a lot of money.
It's a refundable credit. That means that even if you owe zero taxes (which many poor folks do), you can still get money back. This means that many lower income people have negative tax rates!
You have to work to get this credit, either by running or owning a business, working for someone, or owning a farm. You cannot take the credit if you did not work at all. Even if you worked for just one week out of the year, that is enough to qualify you for this credit!
You have to be low-income to qualify for the credit. Income limits are based on filing status and how many qualifying children you have. (see the table below).
Folks with a lot of investment income can not take this credit. Investment income must be $3450 or less for the year. Sorry trust fund kids!



25% of Eligible People Don't Take the Credit

As you can see, this tax credit does a lot to combat income inequality. But the IRS estimates that over 25% of people who qualify for it, don't take it! Why?

Lots of people who are under the filing limit (and owe no tax) do not file at all. So even though they could be getting a free check courtesy of the IRS, they don't want to spend the time or expense to file.

The solution? Low income people should file form 1040EZ (it takes minutes and is, as the name states, easy!), or have their taxes done for free by volunteers from the VITA Program. Don't go through H&R block or other tax preparers! They take a cut for themselves, and when you're that poor, every dollar counts!

Also, it doesn't hurt to remind your tax preparer to check if you qualify for the credit!


How to find out if you qualify:


Use the  EITC assistant  at the IRS website here: It will ask you some basic questions and let you know if you qualify! You can fill it out in English or Spanish.

Don't be one of the millions of eligible people who leaves free IRS money on the table! If you qualify for this, you deserve it!

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