For workers who labor away tirelessly for a less-than-satisfying paycheck, or for a worker who has lost his or her a job, the earned income tax credit can prove to be a truly wonderful benefit. The beneficial aspect of this tax-break is that a portion of the taxes that an individual pays is returned, as long as the person qualifies that is. Still, even those with no tax liabilities can receive a refund from this tax break.
What is different about it?
The majority of tax credits are not refundable. What that means is that if you were filing your income taxes, and wound up owing the IRS $1,400, and you receive a credit for $2,000, you will not receive the additional $600.00. A nonrefundable tax credit will not result in you receiving the remainder of the credit after the owed amount has been paid. Instead, it simply cancels out the owed amount, bringing the total owed to zero.
Unlike a nonrefundable tax credit, the earned income tax credit is refundable. Therefore, using the information mentioned in the above example, rather than losing the $600, that money would be refunded to you instead; hence the term “refundable.”
While the earned income tax credit seems like a benefit all the way around, there is a downside. Unfortunately, the catch here is that filing for this credit can prove to be a fairly complicated procedure (as if taxes were not complicated enough).
You might be thinking, “If it is that complicated, I’ll just hire a tax professional to do it for me.” Well, the problem here is that most of the people who are eligible for the earned income tax credit do not generate much in the way of residual income. Therefore, hiring a tax professional may be an expense that just cannot be afforded under certain circumstances. Luckily, while the IRS may seem like the bad guys, they have in fact implemented a online application that can assist in filing for the earned income tax credit.
As you should be able to tell by now, filing your tax return can be a fairly tricky process. Further complicating the process is the fact that there are so many different stipulations—tax breaks, tax credits, deductions, etc.—that all have to be factored in. That is, if you want to see a fully-maximized tax return. However, do not neglect the earned income tax credit if you qualify, as it can end up being a blessing in disguise.
This post was written by the usually-frustrated taxpayer, Andrew Brusnahan. While you would typically find him ranting and raving about something seemingly pointless, today he chose to take a more subtle approach. If you would like to hire Andrew to write for you, all you have to do is send him an email at firstname.lastname@example.org.