'Earned Income Tax Credit (EITC)' is explained in detail and with examples in the Accounting edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
The Earned Income Tax Credit, also known by its acronym EITC or EIC (for Earned Income Credit), is a benefit offered by the Internal Revenue Service to working people who only have lower to moderate levels of income. In order to qualify for it, prospective taxpayers have to measure up to specific requirements in a year in which they file their tax return.
The IRS requires that they file even when they do not owe any taxes, or if they otherwise do not have to file a tax return. A key benefit of the EITC is that it not only lowers the amount in tax receipts these families owe the government, but it can also create a negative tax liability that translates into a personal income tax refund.
Among the requirements necessary to qualify for this Earned Income Tax Credit, individuals have to receive at least some income while working as an employee for a person or business. Alternatively, they are able to qualify by owning or running either a farm or a business. There are also basic additional rules that involve having a qualifying child or children who meet each of the qualifying rules as set out by the IRS.
The Earned Income Tax Credit is intended primarily to help those families who have children, though it can also apply to other couples and individuals who receive lower to moderate levels of income. The actual amount of the benefits from the EITC is based upon the specific income of the filers as well as the actual number of children they have.
For those couples and individuals who claim children which qualify, they must be able to prove age, parental relationship, and shared residency. For the tax year 2013, the income levels that met IRS requirements had to be under $37,870 on up to under $51,567, which varied based on the numbers of children considered to be dependent in the family. Those workers who have no children yet who earn under $14,340 for an individual or $19,680 for married couples were eligible to get a tiny EITC amount in benefits. Those who do not have children which qualify are able to utilize U.S. tax forms including 1040, 1040A, or 1040EZ to apply. When qualifying children are involved, the head of household filer must utilize either the 1040 or 1040A forms alongside an attached Schedule EITC.
In the tax year of 2013, the IRS had established maximum benefit levels which individuals, couple, and families with qualifying children could obtain. For those who had no children which qualified, the maximum was $487. With a single child who qualified, the maximum benefit rose to $3,250. Where there were two children, this amount grew to $5,372. Finally, with three or even more children who were qualified, the maximum amount increased to $6,044. Each year, these numbers are raised according to the inflation index. In tax year 2015, this reduced tax revenues owed to the U.S. federal government by a not-insignificant around $70 billion.
It should not come as a surprise that these Earned Income Tax Credits have been and still remain a significant item for discussion in the ongoing political conversations within the United States. The debate has centered on the question of which approach would help the poor and lower middle class most. One idea is to raise the minimum wage significantly. The other is to boost the maximum amounts of the EITC. Back in the year 2000, The American Economic Association took a random survey of 1,000 of their members to learn their perspective. Over 75 percent of American economists agreed that it made sense to increase the program of the Earned Income Tax Credit.