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."