The Earned Income Tax Credit (EITC) is a tax exemption that helps low- to moderate-income workers and families. It can be used to lower the taxes you owe and, potentially, increase your refund. A tax credit is a dollar-for-dollar reduction in the income tax you owe. To qualify for the EITC, you must have earned income from a job.
If you have a low or moderate income, the Earned Income Tax Credit can help you reduce the amount of taxes you owe. To be eligible, you must meet certain requirements and file a tax return. Even if you don't owe any taxes or aren't required to do so, you still need to file a return to be eligible. If the EITC lowers your taxes to less than zero, you may receive a refund.
This is different from deductions and exemptions, which reduce taxable income, rather than the taxpayer's tax bill directly. The amount of money you can deduct from your taxes may not equal the total amount of your donations. Some credits, such as the earned income credit, are refundable, meaning that you continue to receive the full amount of the credit, even if it exceeds your entire tax bill. If you meet income thresholds, are eligible for the maximum credit, and don't accept other credits, you won't owe any taxes to the IRS.
For those in the lowest income quintiles, tax credits are more valuable than deductions since there is less income to deduct and refunds provide more disposable income after taxes. Conversely, taxpayers with higher incomes prefer deductions because they are subject to higher marginal tax rates on income that they would otherwise exclude. You may not have to submit documents with your tax returns, but it's good to keep them together with your other tax records. The Get It Back campaign helps eligible people apply for tax credits and use free tax filing assistance to maximize time.
By applying for the Child Tax Credit (CTC), you can reduce the amount of money you owe on your federal taxes. Credits directly reduce the tax liability dollar-for-dollar, while deductions reduce the tax liability by the amount deducted multiplied by the taxpayer's marginal tax rate. A refundable tax credit allows a taxpayer to receive a refund if the credit owed to them is greater than their tax liability. For 30 years, these partnerships have connected low- and moderate-income people with tax benefits such as the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC) and Voluntary Tax Assistance (VITA).