By Kate Dore, CFP® -
CNBC
Tens of millions of Americans file tax returns each year, and many are missing a "valuable credit," according to the IRS.
In 2022, about 23 million filers received $57 billion from the Earned Income Tax Credit (EITC), a tax relief for low- and moderate-income workers.
But nearly 1 in 5 eligible taxpayers do not claim the EITC, which averaged $2,541 in 2022, IRS Commissioner Danny Werfel told reporters during a press call last week.
In 2022, about 23 million people will receive $57 billion from the earned income tax credit.Getty Images
"This is a lot of money" that millions of Americans are eligible for "and some just overlook it," he said.
For the 2023 tax year, the EITC reaches up to $7,430 for a family with three or more children, up from $6,935 in 2022, according to the IRS.
Workers ages 25 to 64 without qualifying children can receive up to $600.
[Three out of four Americans expect to receive a refund on their taxes]
By law, if you claim the EITC, you should receive your refund no earlier than February 27, assuming you filed an error-free return and chose direct deposit for payment.
The tax credit for earned income
"Credit is quite complex," explained Steven Hamilton, associate professor of economics at George Washington University.
"It has a lot of eligibility requirements."
For the 2023 tax year, you may be eligible with employment wages below $56,838 — $63,398 if you're married filing jointly — and have investment income below $11,000, according to the IRS.
Income limits decrease based on the number of qualifying children.
These figures are based on adjusted gross income, which is total income after subtracting pre-tax 401(k) contributions minus "adjustments," such as certain pre-tax IRA contributions and loan interest. students.
The EITC is refundable, meaning you can get a refund even if you don't owe taxes.
You can use this tool to check if you qualify for the EITC.
There are also "qualifying child" guidelines, which can be complicated, including relationship, age and residency testing, Hamilton said.
[IRS will begin receiving and processing 2023 tax returns]
However, the IRS encourages tax filers to use resources such as Free File, a tax professional, or the agency's free tax preparation programs to claim the credit.
There is a “high rate of improper payments
"Millions of eligible taxpayers do not claim the EITC, while other taxpayers claim amounts for which they are not eligible, leading to a high rate of improper payments," wrote Erin Collins, national taxpayer advocate, in the 2023 Purple Book of legislative recommendations.
While higher-income earners are more likely to face an audit, EITC filers experience audits at a rate 5.5 times higher than other Americans who file taxes, in part due to improper payments, according to a report from December from the Bipartisan Policy Center.
This has contributed to racial disparities in audit rates.
Black Americans
are about three to five times more likely to be audited
, according to a 2023 study from Stanford University.
The IRS confirmed these findings in May 2023 and stated that the agency has dedicated "significant resources" to addressing the issue.