Filing taxes can either be very simple or overly complex.
There are so many exclusions, credits, loopholes, and deductions to know about that it can be easy to miss out on credits that you qualify for simply because the tax system is so complex. One of those tax credits worth knowing about, especially if you are in a low income bracket, is the EITC or Earned Income Tax Credit.
What is the Earned Income Tax Credit?
Tax credits are great because they are a direct reduction in the amount of tax that you owe. Tax deductions are good, too, but they simply reduce your income that will then be taxed.
A tax credit like the EITC is much more valuable. It’s important to find out if you qualify for the EITC, especially if you know that you don’t have significant investment returns or income for the tax year.
The Earned Income Tax Credit is meant for people who are working and have low to moderate income. The credit is designed to provide incentive to keep working rather than relying on government subsidies. Part of the goal of the EITC is to offset social security taxes that you pay as you earn an income. As with many government tax credits and deductions there is some controversy around the support the Earned Income Tax Credit provides for individuals or couples with children. [Read more…] about What is the Earned Income Tax Credit?