I should have known better. At a table full of relatives for Easter dinner, I found myself actually getting into a conversation about the economy, big bad Wall Street, the evil government, and of course, clueless journalists.
As a financial journalist, I get a front-row seat to see how frustrating the economy can be. I’ve covered and worked on big bad Wall Street for 20 years, so I’m well aware of how some bad apples give the appearance that the whole bunch is rotten, especially when the bad fruit is allowed to infect others because the government and the “system” are not giving it the “fertilizer” it deserves.
The conversation turned south, however, when I shared my observation that some of our financial problems are also of our own making. Not a popular position these days, particularly when points are being punctuated—or should I say watered down—by free-flowing Easter wine after a long Lenten fast!
Emotions were high, tempers were flaring, logic was on hiatus, but I did, at one point, say, “Look how many people don’t claim the Earned Income Tax Credit!”
Everyone paused. Then one combatant reloaded and shot out, “If the government wanted to give it to us, they would find the people who are eligible and pay them,” which re-ignited the fire.
Despite both guns blazing, I did realize we were looking, once again, at what is really at the heart of so many of our financial problems at home, with the government, Wall Street, etc.: financial illiteracy. It was clear by the comments at my family dinner that very few people understood what the EITC was and how it really works.
The government is not going to hunt you down and give you this refund, so here’s the deal.
EITC 101—What is it?
The Earned Income Tax Credit is a tax credit for low- to moderate-income individuals and families. Congress originally passed EITC legislation in 1975 to, in part, offset the burden of Social Security taxes.
How do you qualify?
You must:
· Have a valid Social Security Number
· Have earned income from employment or self-employment in tax year 2008. You can, however, go back two years if you haven’t filed.
· You must be a U.S. citizen or resident alien all year or a non-resident alien married to a U.S. citizen or resident alien filing a joint return.
The IRS says that 1 in 4 eligible filers does not claim the EITC although it can mean thousands of dollars in refunds. One of the most common misconceptions is that you must have children to file. Wrong!
Don’t have kids? If you earned less than $12,880, or $15,880 if you’re married filing jointly, you may be eligible as long as you are between 25 and 65 years old.
Another common misconception is that the EITC is the Child Tax Credit. It is not! You file the EITC form with your 1040 or 1040A. The forms and an online calculator can be found on the IRS Web site.
You may be eligible for the credit if you have one qualifying child and you earned less than $33,995. The income limit is $36,995 if you are married filing jointly.
If you have more than one qualifying child and you earned less than $38,646, and $41,646 if you are married filing jointly, you qualify, too.
How do my kids qualify?
For your child or children to qualify, they must meet four criteria:
1. They must be the taxpayer’s child or stepchild by blood or adoption. They can also be a foster child, sibling or stepsibling.
2. The child must have the same primary residence as the taxpayer for more than half of the tax year. Exceptions apply in some circumstances such as divorce, temporary absences, separation, etc.
3. The child must be under 19 at the end of the tax year or 24 if he is a full-time student for at least five months of the year.
4. The child must not have provided more than one half of his support for the year.
How much money are we really talking?
Families with two or more children can get a credit amount up to $4,824. In fact, tax planners say that people who fall approximately in the middle of the income requirements, say around $18,500 in this case, tend to get the largest credits.
If you have one qualifying child, the maximum credit is $2,917. It is $438 if you have no children.
If you’ve never filed for EITC, you can go back two years. That can mean almost $10,000 for some families. By most estimates, there are billions of dollars in unclaimed EITC refunds sitting in D.C.
Shout out to Beantown!
One of the hardest things about becoming financially literate is that you often don’t know what you don’t know. Many of the people whom this anti-poverty tool was designed for are the least likely to know that it exists.
While financial-literacy advocates like myself work hard to do things like get Personal Finance 101 taught in schools, it’s nice to see local leaders take matters into their own hands.
A few weeks ago, Boston Mayor Thomas M. Menino had “Earned Income Tax Credit Weekend." His office says this year, the city's tax centers have processed 7,000 returns, resulting in about $5 million in earned income tax credit refunds. Talk about economic stimulus!
Maybe he can come to my Easter dinner next year and better explain that while he supplied the forum, so many of his citizens met him half way. They attended events, called one of the many tax hotlines across the country designed to help people with their taxes and took advantage of all of the free information that is available at tax preparers’ offices, on television and on the Internet. Just ordinary folks empowering themselves with information.
Stacey Tisdale is a veteran on-air financial journalist. She's the author of The True Cost of Happiness: The Real Story Behind Managing Your Money. She is also a board member of nonprofit financial literacy organization, Operation HOPE.