Don't Leave Your Money On The Table This Tax Season
By Mikki Venekamp, AFC®
Tax season is here, and many of us are looking for ways to get more refunds during tax time, especially with the current economic condition. However, many often leave money on the table by overlooking the Earned Income Tax Credit (EITC).
EITC is a refundable federal income tax credit for low and moderate income working individuals and families. Those who are not tax professionals often ask what does refundable credit mean? The simplest explanation would be if there is any money left over that exceeds the individual’s income tax liability, the IRS will refund the balance.
According to the IRS, an estimated four out of five eligible workers and families get the credit, but millions miss it annually, either because they don’t claim it when filing or they don’t file a tax return at all. In addition, last year over 27 million eligible workers and families received more than $63 billion total in EITC, with an average EITC amount of $2,300.
Claiming EITC is not as complicated as you might think. There is a tool on the IRS website called the EITC Assistance (http://apps.irs.gov/app/eitc2013/) that helps individuals determine eligibility to claim the EITC credit, even for those not required to file a tax return due to their income being below the filing threshold.
The average EITC amount of $2,300 is a great way to jump start savings for an emergency fund. It is important to take a moment to utilize the EITC Assistance tool on the IRS website to find out if you or your family is eligible for this credit.
There are special rules for service members when it comes to EITC. According to the tax law, you do not have to report nontaxable income that you receive as a member of the Armed Forces as earned income for EITC. Nontaxable military income includes combat pay, Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS).
As a tax filer, you must make the decision to have your nontaxable combat pay included in your earned income for EITC claim purposes. Find out what is best for you and your family by calculating your taxes with or without combat pay as earned income. It is dependent on your circumstances, such as family situation and work status. Including your nontaxable combat pay as earned income may decrease the amount of tax you owe, which could result in a larger refund.
Be advised that when it comes to paying someone to file your tax return, that should be a last resort, unless you have a complicated return to file. Most of us can utilize the FREE resources, such as Military One Source, VITA sites on installations, and Free File software on the IRA website to file our return for free.