Earned income tax credit could pay off

Taxes » Tax Credits » Earned Income Tax Credit Could Pay Off

The earned income tax credit, or EITC, can be a great benefit for workers who don't make much money or to those who did work but then lost a job. This tax break returns to qualified individuals a portion of the taxes they paid.

It even can produce a tax refund for eligible filers who had no tax liability. Most tax credits are nonrefundable, meaning they simply zero out a tax bill. For example, you owe $800 and have a $1,000 credit. That credit will erase your $800 bill, but you lose the extra $200.

But a refundable credit, which the EITC is, will allow you to get that extra $200 back as a refund from the Internal Revenue Service.

There is, however, a drawback to the credit. It is rather complicated, and because eligible taxpayers usually don't have much cash to spare, they generally cannot afford professional help in filing for it. The IRS has an online program, the Earned Income Tax Credit Assistant, to help these filers.

By answering some questions and providing basic income information, the online program will help you determine your correct filing status, whether your children meet the credit's requirements and will give you an estimate of the amount of credit you may receive.

So that you'll know what to expect when you go to the online program, here's a look at the earned income credit's basic guidelines and pitfalls.

Who qualifies?

Many people think the credit is available only to parents. It's not. But the amount the IRS will give back is greater for eligible low-wage taxpayers with children. The amount is adjusted for inflation each year.

To qualify for the credit, a taxpayer must earn money, but not too much.