When your job doesn’t pay much, the Earned Income Tax Credit (EITC) can be a big help.
This tax break for lower- and middle-income workers has been a part of the tax code since 1975’s Tax Reduction Act. It was a logical extension of the 1960s-era War on Poverty, creating a way for lower-paid workers to offset the Social Security taxes that take a relatively bigger bite out of their smaller paychecks.
Since it’s a tax credit, the EITC provides a dollar-for-dollar offset of any tax owed. And since it’s a refundable tax credit, eligible recipients can get any EITC that’s left after their taxes are paid as a refund.
For 2019 taxes being filed this year, the EITC could pay as much as $6,557 to a family with three or more children. Qualifying filers without kids could get a credit of up to $529.
But claiming the EITC and actually getting it can often be a hassle in normal tax times. It’s worse when you’re also coping with your tax credit claim and COVID-19 limitations.
So the Internal Revenue Service under its new People First initiative is cutting EITC filers some slack when it comes to questions the agency has about their current claims.
They will have extra time — until July 15 — to answer IRS questions about their EITC claims.
Political and practical issues with EITC: Although the IRS is granting some temporary coronavirus relief to certain EITC claimants, not everyone is a fan of the tax break.
The EITC has long been a target of lawmakers who say it’s often fraudulently claimed. It’s also a vehicle used by many tax con artists, sometimes without the knowledge of their unwitting victims.
And even folks who qualify sometimes don’t think the process is worth the payout.
Claiming the EITC can be complicated. That means that many who are eligible don’t mess with the convoluted claim process, either out of frustration or because they don’t have access to low-cost tax preparer help to do so. In fact, says the IRS, millions of EITC-eligible filers overlook this potentially valuable tax break every year.
Things also can be problematic for those who do successfully maneuver the EITC claim maze.
EITC taxpayers, especially those who submit their Form 1040s early in the filing season, have to wait a bit longer for any refunds. Because of EITC fraud concerns, the IRS is required to hold refunds from returns where filers claimed the EITC (as well as the additional child tax credit, or ACTC) until mid-February.
Princess Bride impatience via Giphy.com
The mandated hold applies to the entire refund, even the portion not associated with the EITC or ACTC. That means in reality, most of that refund money doesn’t arrive at the earliest until late in that month.
Then there’s the worst-case scenario. An EITC taxpayers finds him/herself facing follow-up questions from the IRS.
IRS EITC verification reviews: When the IRS has issues with an EITC claim, it initiates a verification review.
Often the agency wants to confirm that the children listed in connection with the EITC claim do indeed qualify. Generally, you must prove your relationship to the child(ren), that the child(ren) lived with you for more than half the tax year, the ages of the youngsters and the youth(s)’ Social Security number(s).
There also is the income issue. To get the EITC, you must have earned income, but not too much. So the IRS could ask for verification of the earnings you report.
The following table shows the income ranges for 2019 tax year EITC claims.
|Qualifying Children Claimed|
|0||1||2||3 or More|
Head of Household
or Surviving Spouse
More time to answer: These IRS additional information requests arrive as notices sent through the U.S. Postal Service. As with all IRS communications, don’t ignore them.
The notices, also known as correspondence audits, have deadline dates by which you must reply or you essentially forfeit your claim.
But due to the problems created for the IRS and taxpayers due to COVID-19 mitigation efforts — agency office closures, IRS staff working from home away from usual resources, taxpayers isolating at home — the IRS’ People First initiative is giving folks who get EITC verification letters more time to respond
Taxpayers now have until the new 2020 Tax Day of July 15 to respond to IRS wage verification reviews and other requests for information in connection with taxpayers’ EITC claims. Any IRS decision to deny the credit because of a filer’s failure to provide requested material by a coronavirus-affected due date before then will be delayed until July 15.
While the agency is providing this extra time, it also encourages folks who get EITC queries to do the best they can to obtain and submit all requested information. If you just can’t, then contact the IRS to let agents know why the info is not available.
You can read about other IRS easing of tax deadlines under its People First plan in my post yesterday that focused on eased audit and collection procedures in coronavirus tax time.