It may surprise taxpayers who hire accountants or lawyers to prepare their returns, but many of their lower-income counterparts miss adjustments or credits they are entitled to under the tax code. And the EITC is a prime example.
Enacted in the mid-1970s, the credit aims to increase incentives to work for those at the bottom of the income ladder, who pay Social Security and Medicare taxes on every dollar they earn even if they don't make enough to owe federal income taxes.
When Ronald Reagan signed an EITC expansion as part of the 1986 tax overhaul, he called the bill "the best antipoverty, the best pro-family, the best job-creation measure to come out of Congress."
The program was further expanded under President Bill Clinton, who chose to broaden EITC in 1993 rather than push to raise the minimum wage.
Since it's a refundable credit, the EITC can either lower your effective tax rate or return cash even if you don't wind up owing any income tax. Despite its benefits, the IRS estimates that 20 percent of those who qualify for EITC don't receive it, either because they fail to claim the credit or don't file tax returns.
Since the credit is based on a complex calculus that includes earnings, household size, and other factors, eligibility varies from year to year. "Millions of workers could qualify for EITC for the first time, and the IRS urges them not to overlook this valuable credit," IRS acting commissioner Steven T. Miller said in a news release.
How important is the EITC to individuals and the economy?
IRS data said the IRS returned $436 million last year to nearly 185,000 Philadelphia taxpayers or households, part of $62 billion returned nationally that year to more than 27 million eligible workers and families. Taxpayers benefited in every one of Pennsylvania's 67 counties, and all 21 of New Jersey's. The average Philadelphia credit was $2,360.
The IRS says workers, self-employed people, and farmers who earned up to $50,270 last year are eligible, depending on other factors. A childless worker earning less than $13,980 could get up to $475. The maximum credit for a family with three or more qualifying children would be $5,891.
"In some circumstances, the EITC can boost a family's take-home income by more than 50 percent," said Mary Arthur, interim director of the Campaign for Working Families, a Philadelphia project born a decade ago at the University of Pennsylvania's Fox Leadership Center and managed by the Urban Affairs Coalition.
How to get free tax-prep help. In Philadelphia, the Campaign for Working Families offers free tax-return preparation by IRS-certified volunteers to families earning up to $51,000 and individuals earning up to $20,000.
On Friday, the campaign opened 11 sites where returns will be prepared this tax season. Locations and hours are available at www.CWFPhilly.org or by calling 311, the city's nonemergency help line.
New this year: Eligible taxpayers can drop tax documents off at the city's 311 center, in Room 167 of City Hall, then pick up returns on the next workday at the city's tax-preparation "super site" at 1207 Chestnut St., where volunteers will be available to help taxpayers review returns.
Free online tax preparation is available this year via the IRS's website to taxpayers with adjusted gross incomes up to $57,000 - a threshold that covers 70 percent of all taxpayers, the agency says. For information and instructions, go to www.IRS.gov and click on "Free File."
Don't have a computer? You can visit one of Philadelphia's 80 public-access computer centers, known as KeySpots. To find one near you, call 311.
Outside Philadelphia, free tax-preparation help is available via the IRS's Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. In the region, visit www.unitedforimpact.org/VITA, or contact the IRS at IRS.gov or 1-800-906-9887.
Contact Jeff Gelles at 215-854-2776 or firstname.lastname@example.org.