What is the EITC?
The Earned Income Tax Credit is a both a federal and a North Carolina tax credit. The EITC is designed to "make work pay" by providing low- and moderate-income working families with a refundable tax credit. A family earning less than $49,078 in 2011 could receive a credit up to $6,039 in federal and N.C. EITC. Each year, the EITC lifts an estimated 5 million people out of poverty, including 2.5 million children.
How did the EITC originate?
The federal EITC was first enacted in 1975 under President Gerald Ford. The EITC has received long standing bi-partisan support as a means to provide relief through the tax code to the working poor. The federal EITC was expanded under presidents Ronald Reagan, George Bush, Sr., and Bill Clinton. Barak Obama also expanded the EITC as part of the 2009 Recovery and Reinvestment Act. To date, 24 states have State EITCs including North Carolina.
What is a “refundable” tax credit?
Most tax credits reduce the tax liability of an individual or household down to zero. A person’s income tax liability is the amount they owe in taxes due to the type and amount of income they made in the previous year. A refundable tax credit allows a person who has less tax liability than the value of the credit to receive the remainder as a refund. Refundable credits, like the EITC, put money in the pockets of low- and moderate-income households because they likely owe less in taxes.
How many people in North Carolina currently file for the EITC?
During 2011, 893,213 working families, 21 percent of all NC taxpayers, filed for the credit and received a total of more than $2.05 billion, an average of $2,291 per family.
Who is eligible for the EITC?
Income guidelines and the amount of the credit vary by household composition. To claim the EITC an individual or family must have worked during the previous year. For detailed information see a complete list of EITC Eligibility Guidelines.
How many people in eligible North Carolinians don't file for the EITC?
Nationally, the IRS estimates that only 75 percent to 85 percent of those eligible for the credit file for it. Using these 75 and 85 percent figures as a guideline, we estimate that in North Carolina between 135,000 and 256,000 eligible tax filers fail to claim the credit each year, leaving between $132 million and $250 million dollars unclaimed each year.
How is the EITC typically used by families receiving it?
Like most American families, the EITC helps low and medium income families buy basic necessities, pay down debt, and put some away. The EITC can be a vital tool in helping households save for education and training, finance transportation to work, start a small business, or save for a home.
Can tax filers claim the EITC from earlier years?
Yes. The EITC can be claimed by an eligible person for either of the previous two tax years. If the person did not file a tax return in the previous year, then they will need to do so to claim the EITC. If the person did file a tax return, but did not claim the EITC, they may file an amended return for the previous year and receive the credit. The IRS website has tax forms and eligibility requirements for prior years. Tax preparers at a VITA sites can help file amended returns.
What is the Advance EITC?
The Advance Earned Income Tax Credit (AEITC) previously allowed some tax payers to receive some of their EITC refund in their paychecks and then the rest when they get their tax refund, rather than as one lump sum. This has been repealed and is not available for the 2012 tax season.
Where are free income tax preparation sites?
Free tax preparation services are provided through the IRS Volunteer Income Tax Assistance (VITA) program. The program is designed for military, elderly, disabled, ESL households and all households whose income is $50,000 or less. IRS trained and certified volunteers assist clients in a one-on-one setting. EITC Carolinas works with VITA coalitions across North and South Carolina to provide VITA services to rural and urban communities. To find a VITA site use the IRS VITA Locator or call the IRS Locater Hotline at 1-800-906-9887.
The Benefit Bank (TBB) also provides free tax preparation in two ways. A person can use TBB’s free Self-Serve to easily e-file their taxes from the comfort of their own home. The service uses simple prompting questions to walk a person through their federal and North Carolina income taxes. Or, a person can visit a TBB site and file their taxes with the help of a trained counselor. TBB sites are located at community organizations, like neighborhood centers, churches, and community colleges. Use The Benefit Bank Locater to find a free TBB tax site.
Are their programs to encourage EITC recipients to save their refund?
Yes! First, free tax preparation services allow EITC recipients to avoid the high fees of commercial tax preparation and the excessive rates of "refund anticipation loans" that reduce the value of the credit to hard-working families. Check out the Save It! page to learn more about programs encouraging EITC recipients to buy Savings Bonds, join Individual Development Account (IDA) programs, and use other North Carolina asset building programs.
How can employers help support their employees’ access to the EITC?
Employeers can help by informing their employees about the EITC and free tax preparation services. Some strategies include:
- Including EITC information with W-2 forms
- Including information in employee newsletters and posting information in employee common areas such as lunchrooms
- Working with local VITA programs to host free tax prep services on-site and hosting financial education “lunch and learn” programs.
Check-out EITC Carolinas free marketing materials!
Employers can also encourage their workers to have a bank account and use direct deposit for their paychecks. Workers with formal bank accounts are more likely to save and those familiar with direct deposit are more likely to use direct deposit to quickly access to their tax refund instead of expensive "refund anticipation loans."
How do I volunteer?
Contact your local VITA site or The Benefit Bank site and ask. Volunteer opportunities are available for people interested in greeting people as they walk in the door, helping prepare returns, babysitting children while others are preparing returns, or providing goods and services for free income tax preparation sites.