For financially-strapped families, refundable tax credits can make the difference between covering rising rent and food prices or falling short. But not everyone who is eligible gets them.
According to 2018 Internal Revenue Service data, the most recent year for state participation rates, 22% of taxpayers eligible for the federal Earned Income Tax Credit didn’t claim it.
That ranges a lot by state, from about 17% in the Dakotas and New York at one end to more than 25% in Alaska, Oregon, California, Colorado and Washington state at the other.
The missed funds concern advocates because the credit is one of the country’s biggest antipoverty programs.
“The Earned Income Tax Credit is for people who earn low-to moderate incomes that may reduce the amount of taxes you owe, or provide you with a refund,” even if you don’t owe any taxes,” said Lisa McCormick, a progressive advocate in New Jersey. “It puts money into the pockets of low-income workers, so not claiming it makes their lives harder than they need to be.”
It’s not too late for some missed credits. You can still claim the Earned Income Tax Credit for the 2019, 2020 and 2021 tax years if you’re eligible, either by filing a tax return or an amended return.
The credit, enacted in 1975, is for low- to moderate-income working households. It cuts the taxes you owe and could increase your refund.
For the current tax year — 2021 — adults who make up to $57,414, have limited investment income and a Social Security number may qualify for credits ranging from roughly $1,500 to $6,700, depending on their filing status and the number of dependents.
The 2021 American Rescue Plan expanded Earned Income Tax Credit eligibility to many more childless adults, but only for the current tax year.
Because that provision expired, an estimated 5.9 million childless adults will bear a tax burden that tips them into or deeper into poverty, according to the Center on Budget and Policy Priorities.
People who requested extensions have until October 17 to prepare and file their income taxes with free tax preparation software using IRS Free File. The elderly, people with disabilities, limited English speakers and those who earn up to $58,000 qualify for free tax preparation services offered through the IRS.
Taxpayers most at risk of losing out on the Earned Income Tax Credit include those living in rural areas, without children, with limited English language skills, people with disabilities and Native Americans, according to the IRS.
McCormick said thousands of eligible families didn’t claim the tax credit in previous years, a combined loss of $84 million,
“Nearly half of New Jersey families eligible for the expanded Child Tax Credit did file for it last year,” McCormick said. “The Treasury estimated that one in four New Jersey residents who qualify for the state’s earned income program, so those families are missing out on credits of up to $7,000.”
A lack of awareness that the tax credit exists may also be to blame for low participation rates.
“The IRS and partners nationwide regularly urge people to verify if they qualify for the Earned Income Tax Credit, and also urge people who don’t normally file a tax return to review whether they qualify,” IRS spokesman Eric Smith said in an email.
The agency has an annual “awareness day” for the tax credit in January, with activities nationwide. Partners including schools, businesses and community organizers have held hundreds of live events in previous years.
Eligible workers “miss out on thousands of dollars every year if they don’t file and claim it,” Smith said.
Public policy advocates have ideas for how governments could increase participation: Public investment in free tax preparation services to make it easier for people to claim that credit and any other they may qualify for. Offering personalized, pre-filled tax returns that residents could accept or amend would also help.
“For a lot of folks whose only sources of income are their wages, the government knows how much they make and if they qualify for the EITC,” McCormick said. “It’s our civic duty to file taxes, but it’s the duty of the government to make it easy for everybody to file.”
To qualify for the EITC, you must: