Anyone earning less than $49,000 a year may be missing out on a valuable federal tax credit worth up to $5,666.
It's called the Earned Income Tax Credit (EITC), and about 20 percent of the eligible people fail to claim the credit each year.
Last year 3,600 Callaway County residents received $7.6 million from the federal government by claiming the special tax credit for low income workers, according to the Internal Revenue Service.
A tax credit is far more valuable than a tax deduction. Someone in the 10 percent income tax bracket can offset only 10 percent of his income through a deduction. But a tax credit will offset dollar for dollar the taxes due. The EITC credit may also actually pay the individual more than his tax bill.
Although benefits are higher for families, the EITC may also be available to individuals with no dependents.
"The EITC can put an extra $457 to $5,666 into the pockets of low income working individuals and families," said Missouri IRS spokesman Michael Devine of St. Louis.
"If they qualify for the credit," Devine said, "they could pay less federal tax or even receive a refund beyond the amount of taxes withheld."
The tax credit is available only to people who have a job and are working but earn less than $49,000 a year.
The EITC was created in 1975 to help offset the cost of Social Security taxes and to serve as a work incentive. It also is designed to persuade people to continue working rather than stopping work and going on welfare.
Since that tax credit started, Devine said more than 522,000 Missourians and families have claimed the tax credit and received more than $1.1 billion from the federal government.
Devine said the IRS has looked at census data and believe that four of five taxpayers who are eligible for the credit take the money but some people are still not aware of the benefit that can not only wipe out a tax bill but provide extra money to low income workers.
Devine offers this typical case:
Someone earning under $49,000 a year prepares his tax return and it shows he owes $1,000 in taxes. He had $900 withheld from his earnings. If he takes the earned income tax credit worth $2,500, he may discover that instead of owing an extra $100, the federal government send him a $1,500 check for the difference.
It's not really a refund of taxes withheld but the federal government still calls it a "refundable credit."
Devine says the extra free money from the government is designed to help offset costs of Social Security payments made by individuals. "It may give them some extra money that they can use to buy a car and get a better job," Devine said. "It is designed to help people improve the lives of working people," Devine said.
To reach out to the estimated 20 percent of people eligible for the valuable tax credit and are not taking it, various community organizing groups have offered free assistance to low income taxpayers.
The Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TEC) programs offer free tax help to taxpayers who qualify.
Low income workers who want assistance in filling out income taxes and to learn whether they qualify for the EITC can contact the Central Missouri Community Action office in Fulton at 610 Collier Lane. For assistance, call 642-3316 to set up a tax consultation appointment.
Free tax assistance for people over age 65 is available at the Callaway County Senior Center, 531 Commons Drive, from 9 a.m. to 12:30 p.m. every Monday, Wednesday and Friday until the tax filing deadline this year of April 17.
To make it easier to determine eligibility for EITC, the IRS this year has created a self-help tool, the EITC Assistant, at the irs.gov on the Internet. The online help offers a step-by-step program to help answer questions about eligibility, filing status, qualifying children and credit amount.
Devine said if people are eligible for the EITC they may find they are eligible for other valuable credits and deductions as well.