The last day that you can file your taxes is April 15th. After that, you may be subject to late penalties. Tax time can be stressful, especially for those who are low-income. Oftentimes, those who are lower income do not have the tools or means to get help from a professional. However, there may be some tips that can help you better handle your taxes! It’s important to keep in mind that not every tip will be applicable to your situation. But they may be worth looking into.
Tax Tips for People Who are Low-Income
Some popular tax tips for people that are low income include:
- Benefiting from the Earned Income Tax Credit (EITC)
- Getting Help from a Free Tax Preparation Service
- IRA Contributions
- Tax Credits for the Disabled and Elderly
- The Retirement Savings Contribution Credit
Benefiting from the Earned Income Tax Credit (EITC)
This tax credit is specifically for low- and middle-income taxpayers. The best part? The EITC is refundable which means you will receive it even if it’s more than your taxes! Let’s Look at an example to get a better understanding of this credit opportunity. If you owe $350 in taxes but are eligible for a $1,000 EITC then you will receive the difference as your tax refund (in this case it would be $650).
You can qualify for this credit in a number of ways. However, one of the most common ways would be to have one or more qualifying children. Just because this is one of the most common ways, doesn’t mean that it is the only way. Individuals with no children can still qualify for this credit as well. Eligibility criteria for the EITC for 2021 takes into consideration the size of your family and your income level. For example, if you have:
- 3 or more eligible children then your household income should be no more than $51,464 (or $57,414 if married and filing jointly)
- 2 eligible children then your household income should be no more than $47,915 (or $53,865 if married and filing jointly)
- 1 eligible child then your household income should be no more than $42,158 (or $48,108 if married and filing jointly)
- No eligible children then your household income should be no more than $21,439 (or $27,830 if married and filing jointly)
How Much Can You Get?
Not everyone will be able to get the same credit amount. The most credit that a person can get depends on the number of eligible children that they have. If you have:
- 3 or more eligible children then the maximum is $6,728
- 2 eligible children then the maximum is $5,980
- 1 eligible child then the maximum is $3,618
- No eligible children then the maximum is $1,502
Getting Help from a Free Tax Preparation Service
There are actually some opportunities for people to get help with their taxes for free! The Internal Revenue Service (IRS) has options like the Volunteer Income Tax Assistance (VITA) program and the Tax Counseling for the Elderly (TCE) program. These programs can provide free basic tax return preparations to eligible people.
For TCE, this program can only help those that are at least 60 years old. For VITA, typically people may be able to qualify for this assistance opportunity if they:
- Make less than $57,000
- Have a disability
- Speak limited English
Individual Retirement Account (IRA) Contributions
As a low-income taxpayer, the IRS allows you to get an IRA deduction. This still applies even if you and your spouse are already covered by a retirement plan at work. However, there are limits that you need to be aware of. These limits will impact the deductibility of your contribution (under special circumstances). Luckily, as a low-income taxpayer, these contribution limits are generally too high and you will probably not run into these limits based on your income level.
For example, let’s say that you are a single filer that works at a company where you are covered by a retirement plan. You would still be able to deduct your full IRA contribution with a modified adjusted gross income. The limit is $66,000. The single-filer deduction isn’t applicable as your income grows to $76,000. However, if you were married and filing jointly then the limit would be $105,000. The deduction for a married couple filing jointly isn’t applicable if the joint income grows to $125,000.
It is important to note that you may run into an issue with your IRA deduction if you are married but filing separately. Since taxes can be tricky, you will want to speak to a professional to clarify any questions, limits, information, etc.
Tax Credits for the Disabled and Elderly
If you are elderly or disabled and low-income, you may be able to benefit from this tax credit. Besides income requirements, you will need to meet other eligibility requirements. Some of these eligibility requirements include:
- Be at least 65 years old by the end of the year
- Have retired on permanent and total disability
- Have taxable disability income
It is important to be aware of limits that come along with this credit. You will not be able to qualify if your adjusted gross income is at or over:
- $12,500 if you’re married filing separately (and have lived apart for at least a year)
- $17,500 for a single filer, head of household, eligible widow(er) with an eligible child
- $20,000 if you are married and filing jointly (and only 1 spouse qualifies)
- $25,000 if you’re married filing jointly (and both spouses qualify)
You will also want to consider the fact that you can’t take this credit if your nontaxable social securities, disability income, or pensions annuities are too much. The limit of credit assistance varies but is between $3,750 to $7,500.
The Retirement Savings Contribution Credit
The government wants to encourage its citizens to succeed! That’s why they offer an opportunity for eligible low-income taxpayers to receive credits for contributing to their retirement plan. The amount that a person can receive can be as little as 10% to as much as 50% of the first $2,000 that is put into a retirement plan like an IRA! For 2021, a single filer could get the highest tax credit if their income was no more than $19,750. The amount of credit that you will receive is based on income limits. If your income is over $33,000 as a single filer (or $66,000 if married and filing jointly) then you would not be eligible for this opportunity.
Commonly Asked Questions
Tax time can be stressful, especially if you are low income. There may be some questions you have that other people have had too.
Can I Skip Out on Filing for Taxes?
Sometimes, the thought of taxes can be so overwhelming that you consider just skipping out on the filing process. However, that is not an option for you to consider. If you need more time to file your taxes, you can choose to file an extension (however the payment will still be due on April 15th which is the last day to get them in!). Otherwise, if you do not pay your taxes you could face penalties.
What If I Need Tax Advice?
If you are in need of some additional tax advice then there are a variety of places that provide this service for free. Some options include:
- AARP Foundation Tax-Aide program.
- IRS Taxpayer Assistance Centers.
- Low Income Taxpayer Clinic.
- Tax Counseling for the Elderly (TCE) program.
- Taxpayer Advocate Service.
- Volunteer Income Tax Assistance (VITA) program.
Taxes can be stressful, but they don’t have to be. There are plenty of beneficial opportunities for people who are low income when it comes time to file their taxes! These tax tips may not be able to help your specific situation but they should be something to consider. If you have any questions, you will want to get in touch with a professional.