The Earned Income Tax Credit (EITC or EIC) is a credit for employed individuals that earn less than $51,567 a year. It is a refundable tax credit that helps lower income groups save more on their taxes. The amount of credit you can receive through this credit varies according to your income and the number of dependents you support; families with more dependents and less income get bigger credits. The IRS has increased the Earned Income Tax Credit that working families can claim through 2017.
Even though EITC seems to be all about benefits, it can also lead to tax debt. Many times, to get a bigger credit some taxpayers claim to have lower income and a greater number of dependents. As this is a refundable tax credit, if they do not owe any taxes, they receive the excess amount of the credit and get a bigger tax refund. This practice often leads taxpayers into tax debt.
The IRS receives information about taxpayers from third parties as well as from their past filed tax returns. If they find a discrepancy in the taxpayer’s claims and the information they have on record, they may investigate further. If the IRS discovers that a taxpayer has made inaccurate claims, they may then rework the amount of credit and ask the taxpayer to pay the excess amount.
In order to avoid problems with the IRS, it’s important to determine whether you qualify for EITC or not, and how much credit can you actually claim. To be eligible, your earned income and adjusted gross income must be less than the determined amount. For 2014, the maximum EITC is $6,143 and the least is $496.