The IRS estimates that each year one in four eligible Americans misses out on money the government owes.
That’s because people fail to file for something called the Earned Income Tax Credit, worth up to $5,981 for 2012. It’s available to anyone who worked even part of the year and earned below a certain limit – for instance, $50,270 for a married couple with three dependent children.
Developed in the 1970s as an incentive to move adults from welfare to work, the earned-income credit has been a powerful force in lifting people out of poverty, financial experts say. In 2010, the federal government estimates, the credit helped to boost about 6 million Americans – including 3 million children – above the federal poverty line by qualifying them for refunds.
Not only can it have a profound effect on a family’s budget, but the credit also helps the economy overall.
Money saved with the credit often goes to buy groceries, pay off debts, cover car and home repairs, and catch up on bills.
So why would anyone neglect to claim it?
“There are two big reasons,” said Mark Batchelor, manager of financial-stability initiatives for the Heart of Florida United Way, which is running an awareness campaign on the issue. “The first is that people who are financially insecure are often too busy taking care of their lives to seek these things out.
And second, the recession knocked a lot of people who wouldn’t normally qualify into that tax bracket.”
Workers who lost their jobs or had their hours cut last year may be eligible for the first time. After all, Batchelor said, the credit isn’t just for the working poor. A household income of $50,270 is very much in middle-class territory.
It’s also important for workers to realize that, in order to get the credit, they have to file a tax return.