If you know nothing of the Earned Income Tax Credit, now may be the time to learn. The 30-year-old EITC program will be offering tax credits—free money, that is—to workers who made less than $42,000 in 2008. For this tax season, the maximum credit is about $4,800. Among other requirements for the credit, you must be a US citizen and file a federal tax return.
The EITC is designed to help out working individuals and families who may don't earn much. In the past, that's mainly been what some describe as the "working poor." But with so many jobs cut and folks out of work, that qualifying population will surely expand this tax season. If your annual salary in 2008 was the U.S. median—$61,500—and you lost your job halfway through the year, you might very well qualify for the EITC, even with some unemployment insurance payments. Single workers with earned and adjusted gross income (AGI) of up to $38,646 and one or more qualifying child are eligible. For married couples filing jointly, that qualifying AGI goes up to $41,646. (Adjusted gross income is earned income after taking into account certain deductions and adjustments.) You can learn more details at the IRS Web site. The agency even has an interactive "EITC Assistant" to determine if you qualify.
The IRS says about a quarter of all taxpayers who might be eligible don't get the credit because they don't file tax returns. In part, that's because you're not required to file a return if your income is very low; if you're under age 65, you must file only when gross income reaches $8,950 for singles and $17.900 for couples filing jointly. But under the EITC guidelines, single and married filers with two children earning just under $8,950 would earn a tax credit of $3,750! In fact, the government begins paying a tax credit to folks who earn as little as $5.
If you use tax software, the program will walk you through a series of questions to ensure you receive your rightful EITC. Likewise, a tax preparer should be trained to help you get your due. You can also call the IRS at 1 (800) 829-1040 for free, face-to-face tax-preparation help through the Volunteer Income Tax Assistance (VITA) program, designed for lower-income taxpayers.—Tobie Stanger