Napans eligible to receive a tax credit of up to $5,891 may be missing out on that money, according to the Internal Revenue Service.
The Earned Income Tax Credit, or EITC, is a tax refund for low- to moderate-income working individuals and families. Congress originally approved the tax credit legislation in 1975, in part to offset the burden of Social Security taxes and to provide an incentive to work, according to the IRS website.
Last year, 6,848 Napa County tax returns claimed EITC, with an average of $1,946 per return. That’s a total of $13.3 million brought back into the community, said IRS spokesman David Tucker II. Around 2.9 million families in California received approximately $6.8 billion in EITC, with an average amount of $2,291.
However, the IRS estimates that 20 percent of those eligible for EITC fail to claim the tax credit, “which means they are potentially losing out on monies that could be in their pockets in the form of a refund,” Tucker said.
Napans who work and earn less than $50,270 from wages, self-employment or farming may be eligible for EITC and free help preparing their tax returns.
Part of the problem is that about one-third of the population eligible for EITC changes every year, probably because people in that group get a job or lose one, have a child or change their marital status, Tucker said. “This changing population of people who are eligible is why it’s so important to raise new awareness every year.”
Others miss out on the refund because they don’t claim it when filing, or don’t file a tax return. Nationally last year, the credit returned close to $62 billion to more than 27 million workers, the IRS reported.
The credit can mean up to $475 in EITC for people without children, and up to $5,891 for those with three or more qualifying children. The EITC varies by income, family size and filing status.
Brett Meltzer, who owns the Liberty Tax franchise on West Imola Avenue, said that most of his clients who are eligible for the refund are already aware of it.
“They are pretty savvy,” he said. “They know they are getting big refunds. They come in as soon as they can so they can get their money as soon as possible.”
Those eligible for the refund typically include lower-income workers, those who don’t own homes and with multiple dependents, he said.
Meltzer said the 20 percent who don’t claim the refund are likely those doing their own taxes or using an untrained tax preparer. He recommends using an experienced professional. “You could be losing a refund,” he said.
At H&R Block on Jefferson Street in Napa, office manager Janice Becvar said her clients who are eligible for EITC also already know of the credit. “If they’ve done it in the past, they expect to get a refund,” she said.
Prompts within the company’s tax preparation software indicate if someone could receive the refund, she said.
“Anybody that’s eligible for it will get it if they come here,” she said. At her office, most of the earners who are eligible for the EITC are students, she said. They have to be over the age of 24, not be living at home anymore, and meet income limits, Becvar noted.
Tom Uboldi of CPA firm Uboldi, Heinke & Velladao said that fraudulent EITC claims in the past have led the IRS to be more careful about the refund. Today, those eligible must provide proof of eligibility and complete certain forms, he said. The tax preparer must also do due diligence, he said.
For divorced or separated parents with custody issues, it gets complicated, he noted.
“Taxpayers should remind their preparers they believe they are entitled to the EITC and to make sure that the preparer claims it for them so it’s not overlooked,” he said.
This year, taxpayers have until April 15 to file their 2012 tax returns and pay any tax due. The IRS expects to receive more than 147 million individual tax returns this year, with about 75 percent projected to receive a refund.
Last year for the first time, 80 percent of all individual returns were filed electronically. E-filing, when combined with direct deposit, is the fastest way to get a refund. Last year, about 3 in 4 refund filers selected direct deposit.