As tax time approaches one important federal tax program might provide you a good way to put some money away into savings as you work on improving your financial situation. Financial experts differ on how much you should have set aside, but agree that you should have something to prevent you from relying on credit to pay for emergencies.
Like any federal tax incentive or credit that focuses on a particular group, the Earned Income Tax Credit and the accompanying Child Tax Credit might rise to the level of “political footballs” in the coming years. Both are scheduled for reduction in 2017. But they are still available now, for tax year 2013. As you prepare your taxes or have them done, make sure you find out if you qualify for either credit. The IRS has information online to help you see whether you do.
For a little history, the Earned Income Tax Credit was created in 1976 with the thought that it might help reduce welfare and encourage people to work. In 1986 it was expanded as part of an income tax reform measure crafted by President Ronald Reagan, who called the EITC “the best antipoverty, the best pro-family, the best job creation measure to come out of Congress.” Since then the Child Tax Credit was added and it was expanded again.
Qualifying depends on income, marital status and the number of children you have. The federal government increases the credit dramatically based on there being any children at all in the home. A couple with no children qualifies if the income in the home is less than $19,680. With one child, that maximum income to qualify jumps up to $43,210. A married couple filing jointly with three or more children qualifies for some credit if their earned income is less than $51,567.
Depending on your family and your income, the difference in your tax statement can be as much as a few thousand dollars. For many people it will be the difference between a small refund and a big one.
If you have not been able to set something aside in savings as an emergency fund, this could be a good time to do it. Financial experts say to have at least $1,000 set aside for emergencies. Others say have as much as three months’ expenses. Should you see a substantial amount of extra money it is one of those times to consider how best to address your debts. Talk with an American Financial Solutions credit counselor to discuss the options best for you. If you already have savings, consider putting as much of the extra money as possible toward eliminating your debts.
Whatever your strategy, when you do your taxes make sure to see if you qualify for tax credits originally designed to help working people and their families.