I recently got a letter in the mail from the IRS. We'd already filed our taxes, and amazingly, we'd also already received our federal refund by mail in just about a month's time. Therefore, when I pulled that IRS-labeled letter from our mailbox, I was immediately concerned. I've never received any sort of notification from the IRS, and of course, I immediately figured it couldn't be anything good.
But I was wrong. The government was actually writing to ask if we'd like some more money! The letter notified us that we might be eligible for the EIC or "earned income credit", a tax credit we'd never before taken.
Our Lowered Income
Our income for the past year was reduced compared to what it's been in years past. There were several reasons for this. First off, due to my wife's new work in the school system (meaning she now has unpaid summers off) and her maternity leave for our second child, her income was much lower than usual. Secondly, I'm already on a lower income due to my work as a self-employed writer and at-home dad of two. This meant that our income for the past year was at the lowest point it's been at in years.
An Extra Child
Our second child was born during this tax year and beyond the excitement of having another child, I was also pumped about the additional exemption we'd now realize on our taxes. I hoped it'd at least cancel out some of the birthing costs. However, since we'd never been at such a lowered income before and never had two kids, I didn't exactly realize that our second child might make us eligible for the earned income credit. Even then, this isn't where I went wrong when figuring our taxes.
Where I Went Wrong
My faux pas with doing our taxes this year when it came to the EIC wasn't with my initial figuring. I typically do an estimated run-through of our taxes about a month or so before I actually file them to give me a general idea of where we'll be coming in come filing time. Then, once I get all our tax documents, I do the official filing.
However, this year, since my wife was on maternity leave and received some short-term disability money, I wasn't sure whether her income from this would be taxable. I counted it as such when I did our practice tax run, which gave us one income number. This number gave us an overall income amount that was too high to take the EIC. After some research though, I found that this disability money was not counted as taxable income, which in turn lowered our overall income number; but I failed to reconsider the earned income credit when I filed our official tax returns.
So We Get this Letter in the Mail…
So as I mentioned, when I saw the IRS letter in the mail, my heart started to pound. Once I opened it, I was amazed, but somewhat stunned by the silliness of the whole thing. It was a letter informing us that we might be eligible for the Earned Income Credit. If we wanted the government to figure the credit for us, I would need to complete a short form regarding the number of dependants in our family, and they would in turn let us know if we qualified and would send us the additional tax refund if we did.
I found this communication odd since the IRS already had all this information filed with our taxes. So they should know if we qualify or not, so why bother with the letter? While it's bureaucracy at its best, I'm not going to refuse the extra refund. And so I completed the short form and mailed it back to them, receiving more of our own money back than I expected this year.
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The author is not a licensed financial or tax professional. The information provided in this article is for informational purposes only and does not constitute legal, financial or tax advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
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