Friday, January 25, 2013
The EITC is a tax credit available to qualifying low-wage workers and their families. Those receiving the EITC already pay a significant amount in federal, state, and local taxes. Among the most significant victories in the recent “fiscal cliff” agreement by Congress was the protection of key tax credits for working families – including the EITC and the Child Tax Credit (CTC). Several critical but expiring improvements in these credits were extended for five years, helping to shield 25.7 million families from an average loss of about $843 of assistance per household.
Millions of workers could overlook an important federal tax
credit because they simply don’t know about it. Unfortunately, only about four out of five eligible families actually claim the EITC for which they qualify, according to the Internal Revenue Service. As a result, they could miss
out on as much as $5,891 extra in their federal income tax refunds through the EITC. In addition to helping cover basic household expenses, a family’s tax refund also offers a chance to put some money into savings.
The EITC is one of the nation’s largest and most effective anti-poverty
programs. It annually lifts more than 6 million people out of poverty, half of
them children. Policymakers should weigh the success of the EITC and other
refundable tax credits as plans for tax reform take shape in Washington, DC and
state capitals, considering half the states have created EITCs of their own, as
well. Policymakers should take every step to preserve these crucial policy tools,
which also include the CTC and the American Opportunity Tax Credit.
In Indiana, the State EITC rate is 9% of the federal EITC credit. Using the most recent Federal data data, approximately 123,250 additional Hoosiers were eligible to receive the federal EITC in 2008, but did not claim it. With an average return of $1,991 for the federal credit, that amounts to over $245 million in unclaimed dollars for Hoosier workers.
