When I first started learning about taxes I had heard of the Earned Income Tax Credit (EITC) and assumed it was a way for low income tax payers to reduce their tax liability.
Then I took a tax class and learned about refundable credits. Both the EITC and the Additional Child Tax Credit are refundable credits. A refundable credit is a credit that allows you to get more money back from the IRS than you had withheld.
It wasn't until I actually began preparing taxes that I realized the magnitude of the EITC. Assume that you and your husband made $16,000 in 2011 and had $1,000 withheld for income tax.
When you file your taxes not only will you get back the $1,000 that you had withheld but you will also receive EITC of $5,751 and Additional Child Tax Credit of $1,950. Your total tax refund will be $8,701.
Last year according to the IRS 268 million tax payers received the EIC for a total of $59.5 Billion!
According to the IRS:
"In tax year 2010, almost 26.8 million eligible workers and families received over $59.5 billion total in EITC. The average EITC amount last year was around $2,200."
2 thoughts on “Earned Income Tax Credit”
Marion – I’m having a hard time getting my head around your number. Could you give a reliable source for the final statement in particular, “268 million tax payers”?
I don’t know if my source is accurate (or does it have a political agenda and a motivation to warp the data?), but I see one reference (attributed to the IRS) that says there were 138 million federal tax returns filed in 2009. So I’m having a hard time figuring out how you get 268 million payers who are getting an EIC – that’s almost twice as many people as the number of returns filed. I got that number here: http://www.taxfoundation.org/news/show/250.html#table2
Maybe that site is wrong, but given that the population of the US is about 313 million, 138 tax returns seems to be in the right ball park, whereas 268 million tax payers receiving an EIC just seems impossible. Did you have a typo, or did your source have a typo?
Amy, Thank you so much for catching my error!! I am missing a decimal point. which of course means that my number is an order of magnitude off. One source is the IRS web site here http://www.irs.gov/individuals/article/0,,id=177571,00.html
The following sentence is taken from an IRS press release here. http://www.irs.gov/newsroom/article/0,,id=252983,00.html
“In tax year 2010, almost 26.8 million eligible workers and families received over $59.5 billion total in EITC. The average EITC amount last year was around $2,200.”
again thank you for noticing my error. I have corrected the post.