Childless adults can use earned income credit

Susan Tompor | USA TODAY

The Earned Income Tax Credit has one of those clunky names that you might ignore, as unfortunately some do. But the complex credit can put real money into the pockets of working people.

Each year, the Internal Revenue Service, volunteer tax preparers, and others roll out a National EITC Awareness Day to warn that much-needed money is being left on the table.

After years of such publicity and with almost 28 million people receiving $66 billion for the credit last year, it is hard to believe that anyone would not know about a key tool that fights poverty.

Kathleen Hatke Aro, president of the Accounting Aid Society in Detroit, said she's unsure why millions of dollars still goes unclaimed.

"Quite frankly, I think a lot of people who don't claim it are single," said Aro, who headed up an EITC event in late January at the Ford Resource and Engagement Center in southwest Detroit.

Over the years, many associated the credit with working families. But a smaller credit for people without children is available and can be worth up to $496 for 2014 tax returns.

By contrast, this tax season, the federal credit can be worth up to $6,143 for those with three or more qualifying children.

Elaine Maag, senior research associate for the Urban Institute and the Tax Policy Center, said the overall take-rate for the earned income credit can be fairly high, around 86% based on some research. But those who do not have children are often not applying for the credit that they'd deserve, she said.

If you do not have a qualifying child, you must be age 25 but under 65 at the end of the tax year, live in the U.S. for more than half the year and not qualify as a dependent of another person.

The credit for those without children is available only to those with very limited incomes. For 2014, the income limit is $14,590 for singles and $20,020 married filing jointly, if no qualifying children are involved.

A consensus is building to expand access to the earned income credit for childless workers. President Barack Obama has proposed expanding access for more low-wage childless adults.

U.S. Rep. Paul Ryan of Wisconsin, chairman of the House Ways and Means Committee, and some others in the Republican Party have made similar arguments as part of poverty programs. In 2011, childless workers received just 3% of all EITC money.

Welfare to work

Ryan has called the EITC one of the better ways for getting people from welfare to work.

One idea calls for possibly lowering the age limit for childless workers to 21 instead of 25, assuming the person is not a dependent or qualifying child for another taxpayer.

Over the years, it's clear that some missed out on the credit because their situations changed and they didn't realize they qualified for the earned income credit.

Frankly, the EITC has changed, too, including expanding coverage in 1986, 1990 and 1993.

The income limits, the rules and the payout have changed so much that trying to understand the exact rules could be a moving target for taxpayers.

The nature of a refundable credit could add to the confusion. A refundable credit means workers may get money back, even if they have no tax withheld.

Marshall Hunt, certified public accountant and director of tax policy for the Accounting Aid Society's tax assistance program, said some people might not apply for the EITC because they received a W-2 but didn't have any taxes withheld and they are not required to file taxes because their incomes are so low. They do not realize how valuable a refundable credit can be.

"If you have earned income, I would check it out," Hunt said.

The refundable credit is designed to reward those who work hard to make ends meet. It was rolled out originally in 1975 to offset payroll taxes, which take a disproportionately higher share from lower-wage workers.

Someone who earned $52,427 or less in 2014 might be able to qualify for some money. The IRS website — has an "EITC Assistant" to run some numbers online.

The good news is that there is free software available.

Tax volunteer groups, such as the Accounting Aid Society and the AARP Foundation Tax-Aide Program, offer free tax preparation help for those who qualify.

The amount of the credit varies widely. But those receiving the credit are able to use extra money to buy clothes for children, pay other bills and even put a down payment on a used car.

If someone misses out on just a few hundred dollars, they're missing some money that could ease their financial struggle.

Contact Susan Tompor: 313-222-8876 or stompor@freepress.com. Follow her on Twitter @tompor.

More help for struggling tax filers

• The Accounting Aid Society in metro Detroit takes appointments at most locations for tax help. Call 313-556-1920 or go to www.accountingaidsociety.org.

• For information on the AARP Foundation Tax-Aide Program, call 888-227-7669 or go to www.aarp.org/money/taxes.