In 2018, the tax code was changed and many of those changes dealt with the Earned Income Tax Credit (EITC). For higher wage earners, these changes weren’t helpful. For low wage earners, the changes have meant smaller tax payments and sometimes even refunds.
If you’re a company that takes advantage of the Work Opportunity Tax Credit (WOTC) then odds are you have one or more employees that could take advantage of the 2018 changes to the EITC. But most of your employees may not know that’s an option.
What is the Earned Income Tax Credit?
The very first line on the IRS webpage says, “The Earned Income Tax Credit, EITC or EIC, is a benefit for working people with low to moderate income…EITC reduces the amount of tax you owe and may give you a refund.”
To qualify for the EITC, you must earn income by working for someone or by running or owning your own business. The IRS has a whole list of questions that will help you determine if you qualify for the EITC. You can find it here.
The maximum income you are allowed to earn and still qualify for the EITC will vary depending on whether you’re married or single and how many children you claim as dependents. There’s a full table here.
Why employees need to get new advice about the Earned Income Tax Credit every year
The one thing employees need to know is just because they qualified for the EITC last tax season, it does not mean that they automatically qualify for the EITC this tax season. By the same token, just because they didn’t qualify last tax season, they could qualify this tax season.
Several life situations can disqualify an employee from the EITC or qualify an employee that did not qualify before, such as:
- A new job;
- A change in the spouse’s employment’;
- Unemployment;
- A change in marital status;
- Dependent children becoming adults.
If one or more of these things change, then the employee can move into or out of the tax bracket that allows him or her to take advantage of the EITC.
How can an employee find out if they qualify for the Earned Income Tax Credit?
If the IRS paperwork is too confusing, and it can be, the IRS has other ways to help low-income earners get tax advice. The IRS website has a search tool to help people find free tax help. In many instances, there are translators on-site for the key languages such as Spanish, Chinese, French, Tagalog, and Vietnamese.
You can find the locator tool here.
Be careful offering tax advice to employees
Lastly, a disclaimer to keep you out of legal trouble.
You need to be very careful when talking about taxes with your employees. While you may be business savvy and have the answers they are looking for, unless you’re a licensed tax professional you cannot give tax advice.
You cannot advise an employee to do something or not do something financially, even if it’s in his or her best interest.
You also cannot help him or her fill out any tax forms. Once again, you are not a licensed tax professional.
What you can do is make employees aware of some of the opportunities available to them and allow them to look into it on their own.