Who would want to go through the stress involved with filing a tax return if they, technically, don't make enough money to be required to file a tax return? Why indeed?
But that logic only hurts you, if you qualify for the earned income tax credit. Low- and modest-income workers could miss out on hundreds or even thousands of dollars in a tax refund if they don't file both a federal and a Michigan income tax return for 2023.
Michigan residents who qualify can get money through the earned income credit from both the state of Michigan and the federal government. There are two EITC credits — a main, larger credit that enriches a federal tax refund and a smaller but significant state of Michigan credit that boosts a state refund after filing a Michigan income tax return.
According to estimates from the Internal Revenue Service, one-third of those who qualify for federal earned income tax credit became eligible for the first time this year due to changes in their marital, parental or financial status.
The IRS and the state of Michigan began processing tax returns on Jan. 29; the tax deadline for both is April 15.
The dollar amount that individuals receive when claiming the earned income tax credit varies dramatically based on family size, income and filing status. You need to have worked or have earned income in 2023.
The maximum earned income tax credit is $7,430 in 2023 for an eligible family with three or more qualifying children. That is up from a maximum of $6,935 in 2022.
With one qualifying child, the federal credit can be up to $3,995 in 2023.
A lower-income worker between the ages of 25 and 64 who does not have children could qualify for a federal credit up to $600 when filing a 2023 federal income tax return.
And there's more money if you file a state of Michigan income tax return and qualify for the Michigan earned income tax credit, too.
On Wednesday, community leaders gathered at Focus: HOPE in Detroit, where free tax help is offered during the tax season, for a media event to highlight the financial benefits of filing income tax returns for 2023.
Detroit Deputy Mayor Todd Bettison noted that Detroiters typically left an estimated $80 million on the table in unclaimed tax refunds each year, including money from the earned income tax credit, before 2017 when a coordinated community push began to encourage people to file returns and claim their tax credits.
Some lower- to modest-income workers may not want to file tax returns, if they don't have to do so, because they think they cannot afford paying $300 or $400 or more to tax preparation services. Others might think they owe money when they don't.
"It is free, Detroit — at no cost," Bettison said, noting that free, expert tax preparation is available from various, IRS-trained volunteer groups across Detroit and surrounding communities.
The volunteer sites — including an Accounting Aid Society site at Focus: HOPE that often serves 1,600 people each year — offer free tax help to people who need assistance, including those who generally make $64,000 or less.
Domonique Williams, program manager for the Wayne Metro Community Action Agency Program, which also offers free tax help, said sometimes people are too intimidated by taxes and the Internal Revenue Service to take time to file their taxes. They let their fear of the process drive them to ignore IRS notices or not claim important tax credits when they should not do so.
Why the credit means even more in Michigan
Michigan's earned income tax credit will surprise many people this year when they spot a significantly higher payout after filing their 2023 state returns.
Previously, the state of Michigan offered extra money through a state earned income credit that amounted to 6% of the federal credit. We're talking about some cash, but realistically it wasn't a lot of extra money.
More: 3 big changes coming to 2023 Michigan income tax returns, including extra check for some
Before a major change was signed into law last year, the extra Michigan credit on 2022 state returns was worth up to $34 for qualifying tax filers with no qualifying children. For those with one child, it was a maximum of $224. And the maximum Michigan credit on 2022 returns was $370 for tax filers with two qualifying children or a maximum of $416 with three or more qualifying children.
But the state credit is much, much higher now because it will now be calculated based on 30% of the federal credit each year in 2022, 2023 and 2024. The maximum earned income tax credit in Michigan is $2,229 for 2023 for those with three or more qualifying children.
Michigan lawmakers approved expanding the credit early last year, a financial boost for working families that was championed by Gov. Gretchen Whitmer in her State of the State in 2023.
The change is retroactive for 2022, making the maximum earned income credit on Michigan state income tax returns go up to $2,081 for 2022.
Some money will be sent retroactively. Michigan taxpayers who filed tax returns for 2022 last year and qualified for the earned income tax credit will see decent-sized checks arriving in the mail from mid-February through March.
The state is retroactively applying the remaining 24% credit that's left for 2022 under the new law and rolling out payments automatically. Taxpayers should not amend their 2022 returns to receive the extra amount involved with this new higher credit, according to the Michigan Department of Treasury.
The additional 24% adjustment checks being issued soon will average $618 per recipient, according to Whitmer's office.
More: Proposed child tax credit changes might create confusion on 2023 returns
More: IRS: 2023 income tax returns will be accepted starting Jan. 29
Again, the amount one receives in Michigan based on their state income tax return will vary based on a family's situation. But much more money is available now that Michigan's credit is based on 30% — instead of 6% — of the amount one receives for the federal earned income tax credit.
To obtain the Michigan credit, you must file a state tax return and claim the earned income tax credit, even if you do not owe tax or are not required to file. And you must file a federal income tax return and claim the federal EITC.
Last year, Detroit Mayor Mike Duggan pointed out that the effort last year to raise the state credit had bipartisan support.
Duggan, who attended Whitmer's State of the State address in early 2023, noted last year that there was one time that both Democrats and Republicans stood up and cheered together "and it wasn't for the Detroit Lions." Instead, members of both parties applauded in 2023 in agreement on expanding the state's earned income credit in some fashion.
Many people don't know they're eligible for the EITC
Each year, metro Detroit and other communities across the country hold events to encourage more people to file a tax return to claim the money they're owed through the earned income tax credit. They're not just claiming money that was withheld from paychecks; they're claiming even more money owed through the credit.
IRS Commissioner Danny Werfel called the EITC a "frequently overlooked tax credit."
"You're only eligible for the earned income tax credit, if you file a tax return and claim the credit," Werfel said.
Yet roughly 1 in 5 taxpayers who could get the credit, he said in a call with reporters Jan. 26, don't claim it.
Going back a few years, about 24% of all eligible earned income taxpayers did not claim the credit in tax year 2020, according to other data provided online by the Internal Revenue Service. In Michigan, it was estimated that 26.3% of those who qualified didn't claim the credit for tax year 2020.
If you're earning very little money, for example, you might not realize that you don't have to have children to qualify for some money through the earned income credit. Some first-time parents with low-paying jobs may not know they are eligible.
The earned income credit is refundable — which means that even workers who did not earn enough money to have taxes withheld can receive hundreds or thousands of dollars in a tax refund for the earned income credit.
The federal credit, which dates to 1975, aims to encourage paid work by recognizing that extra costs associated with holding down a job can discourage people from working in low-wage jobs. The credit was developed to offset the burden of Social Security taxes, according to the IRS, and provide an incentive to work.
It is a key measure, according to advocates, for lifting children out of poverty. Substantial expansions to the federal program took place in 1986, 1990 and 1993.
While calculating the tax credit can be complicated, it's far less troublesome than it was decades ago when people used calculators, pencils, and paper to do their taxes. The development and proliferation of tax software have made figuring out the credit far easier.
The credit does have several key rules, though, including the definition of qualifying children. The child, for example, must be related to you. The child must live in the same home as you for more than half the tax year. Only one tax filer can claim the child in a given year.
Eligible workers must have valid Social Security numbers for themselves, their spouse if filing a joint return, and for each qualifying child claimed for the earned income credit.
To qualify for the credit, your investment income also must be below $11,000 in the tax year 2023.
A long list of income guidelines applies to the earned income tax credit. The maximum earnings limit for a married couple filing a joint return is $63,398 in 2023 if they have three or more qualifying children. The limit is $56,838 for a single parent with three or more children.
The maximum income is $17,640 for a single person with no qualifying children.
How to get free tax help to claim the earned income credit
Many people find that it's easier to turn to a trained volunteer at a nonprofit tax preparation site to prepare the tax return at no cost. And that's true even if someone doesn't qualify for the earned income tax credit.
Elizabeth Walker, 64, collects Social Security benefits but also works part time as an assistant manager at the Ashley Stewart store on Woodward Avenue in Highland Park.
Walker qualified for the earned income tax credit in the past but she didn't this year because she earned more than the EITC limit when she had her 2023 return prepared in late January. She earned just enough to owe taxes on some of her Social Security benefits, too.
She'll owe about $144 in federal taxes, but she'll receive a refund of $573 from the state of Michigan, including income taxes withheld for the city of Detroit and the city of Highland Park.
Walker said she's been having her taxes done for free at Focus: HOPE for about six or seven years, estimating she saves about $300 in tax preparation fees. Saving money on tax preparation is real money that stays in her pocket.
Pandemic-era relief included a break that enabled some older retirees on limited incomes to receive some extra money through the earned income tax credit for a limited time.
On 2021 federal income tax returns, there was no longer an age cap set at 64 or younger for workers to qualify for the earned income tax credit. It was a one-time-only deal that advocates pushed to extend for older workers in other years with no success.
Currently, workers who are 65 or older who do not have dependent children do not qualify for the earned income tax credit. A grandparent who has a qualifying child living with them, and meets other requirements, would be eligible in most circ*mstances, regardless of the grandparent’s age.
In Michigan, free tax preparation services are offered to those with lower incomes and others at a long list of locations run by the Accounting Aid Society, Wayne Metropolitan Community Action Agency and the AARP Foundation Tax-Aide Program.
Those in metro Detroit can call the United Way for Southeastern Michigan at 2-1-1 or visit www.getthetaxfacts.org to learn more and schedule an appointment for free tax help. Or see MichiganFreeTaxHelp.org for information.
The Wayne Metropolitan Community Action Agency has a "Show Me the Money" income tax day from 11 a.m. to 4 p.m. Feb. 10 at the North West Activity Center at 18100 Meyers Road in Detroit. Appointments are recommended. Walk-ins are available as capacity allows.
Or you can call the IRS hotline at 800-906-9887 or visit IRS.gov/vita to find free tax-assistance locations for qualifying taxpayers.
Qualified households also can use the guided, do-it-yourself approach through the "Free File" online tax preparation software offered only at IRS.gov.
Earned income credit adds up to more than $2,500 for many
The average amount of the earned income tax credit received nationwide in 2023 was about $2,541. About 23 million workers and families received about $57 billion through the earned income credit as of December.
In Michigan, 664,000 households received the federal earned income credit as of December 2023. Michigan residents received an average of $2,587. The total amount was $1.7 billion in Michigan.
The average Michigan earned income credit from filing a state income tax return was around $155, with the calculation for the state credit at 6%.
The IRS defines earned income as, among other things, wages and tips reported on a W-2 form; benefits from a union strike, and income from a job where the employer didn't withhold taxes, such as selling goods online, driving a car for booked rides or deliveries, and freelance work.
Earned income to qualify for the credit does not include pensions, money made working as an inmate in a jail or prison, Social Security income, unemployment benefits, alimony, child support, and interest and dividends.
When can you expect a tax refund?
Even if you file as early as possible, taxpayers claiming the earned income tax credit or the additional child tax credit aren’t able to get a refund before mid-February by law. The IRS must delay issuing those refunds in order to avoid fraudulent claims early in the season.
The IRS said early filers can expect to see most refunds related to the earned income tax credit or the additional child tax credit to be in bank accounts or on debit cards by Feb. 27 under key conditions. The Feb. 27 date depends on whether the tax filer electronically files the tax return, chooses direct deposit, and the IRS has no other issues with the return.
Matt Hetherwick, chief program officer for the nonprofit Accounting Aid Society in Detroit, said people who have their taxes prepared for free do not need bank accounts to receive their tax refunds through direct deposit. Many are able to use a U.S. Bank Focus Card, a reloadable, prepaid debit card to receive the tax refund directly and avoid high fees at check-cashing stores. Using direct deposit can help people get refunds within less than three weeks.
Contactpersonal finance columnist Susan Tompor:stompor@freepress.com.Follow her on X (Twitter)@tompor.
This article originally appeared on Detroit Free Press: Earned income tax credit matters even more in Michigan in 2023
