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Volume 6, Issue 1, 2006   Federal Reserve Bank of Dallas

Earned Income Tax Credit Campaign Urges Taxpayers to File for Unclaimed Refunds

The Internal Revenue Service estimates that millions of dollars are left unclaimed each year by taxpayers who could benefit from it the most. For those who work and have incomes from $11,750 or less (for a single person with no children) to $37,263 or less (for a married couple filing jointly with two or more children), filing for the Earned Income Tax Credit (EITC) results in an average tax refund of $2,000 among families with children (see table).

Current Tax Year: 2005
Maximum Adjusted Gross Income for EITC Eligibility
  Unmarried Taxpayers Married Filing Jointly*
No children $11,750 $13,750
One child $31,030 $33,030
Two or more children $35,263 $37,263
*Married couples who file separately are ineligible for the EITC.
Tax Year 2005 Maximum Credit:
  • $4,400 with two or more children
  • $2,662 with one child
  • $399 with no children

Congress established the tax credit 30 years ago to offset the burden of Social Security taxes and provide low-income families with an incentive to work. The EITC now lifts more children out of poverty by providing more dollars to working families than any other social program ever enacted. Ten times the size of the Community Development Block Grant program, the EITC is larger than food stamps and Temporary Assistance for Needy Families combined. About $39 billion in EITC refunds were claimed for tax year 2003.

The EITC is a "refundable" credit, which means qualified households can get it even if they owe no net taxes. It is available to full- and part-time workers, self-employed individuals, workers who also receive public assistance and immigrants who are legally authorized to work. EITC eligibility is based on income and family size.

The EITC Assistant, a new IRS tool available in both English and Spanish on the IRS web site, www.irs.gov, helps determine eligibility and estimates the amount of the EITC taxpayers may receive. To receive the refund, taxpayers must file a tax return even if they did not earn enough money to be required to file a return.

The IRS estimates that each year 15 to 25 percent of all eligible workers do not claim the EITC. According to the Texas Workforce Commission, Texas ranks first in the amount of EITC funds claimed in 2003 (over $4 billion). However, the Texas comptroller estimates 600,000 eligible families did not apply, potentially leaving more than $1 billion unclaimed—lost opportunities to pay down debt, get new tires for the family car and save for a rainy day.

Why are thousands of low-income households leaving money on the table? Most experts believe people are not claiming the credit because they do not know the EITC exists or think they are not eligible.

Like many taxpayers, low-income families often need help with preparing their tax return. Free assistance is available at Volunteer Income Tax Assistance (VITA) sites and Tax-Aide sites (sponsored by AARP), conveniently located in community centers, libraries, schools and at some large employers. Throughout the year, local coalitions plan the sites, recruit volunteers to staff the sites and implement marketing strategies, with the goal of getting more EITC dollars back into their local economies.

To locate the nearest VITA site, call 1-800-829-1040. Information on Tax-Aide locations is available at the AARP web site, www.aarp.org Off-site page.

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e-Perspectives, Volume 6, Issue 1, 2006

Federal Reserve Bank of Dallas Off-site page
Community Development Office Send an e-mail
P.O. Box 655906, Dallas, Texas 75265-5906
Gloria Vasquez Brown Send an e-mail
Vice President
    Alfreda B. Norman Send an e-mail
Assistant Vice President and Community Development Officer
Jackie Hoyer Send an e-mail
Houston Branch
Senior Community Development Advisor
    Julie Gunter Send an e-mail
Community Development Specialist
Elizabeth Sobel Send an e-mail
Community Development Specialist
    Roy Lopez Send an e-mail
Community Development Specialist
The views expressed are the authors' and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Development Office.

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