As tax preparers, we are always on the lookout for ways to maximize clients’ financial well-being by identifying often-overlooked tax benefits. One such opportunity that continues to slip under the radar for many Americans is the eligibility of long-term disabled individuals to claim the Earned Income Tax Credit (EITC). The IRS estimates that up to 1.5 million people who are currently receiving long-term disability benefits prior to reaching minimum retirement age may be missing out on this valuable credit.
Understanding the Nuance
Many taxpayers, and even some tax preparers, mistakenly assume that disability income does not qualify as earned income for EITC purposes. However, disability retirement benefits received before reaching the minimum retirement age are indeed treated as earned income.
Reclaiming Missed Opportunities
Tax preparers should be proactive in helping clients who qualify but did not claim the EITC in prior years. The IRS allows amendments to returns for up to three years after the original filing date. Even those who were not required to file tax returns may retroactively claim missed credits. This actionable insight is a powerful tool to rectify past oversights and deliver value to clients who may desperately need it. By identifying previous oversights, preparers can open the door to several years of additional refunds for qualifying clients.
Addressing Misconceptions
Another hurdle in fully unlocking the benefits of EITC for long-term disabled individuals is the pervasive myth that receiving the EITC might negatively impact their eligibility for programs like Social Security disability benefits, Medicaid, food stamps, and housing assistance. It’s essential to communicate clearly to clients that receiving the EITC does not affect eligibility for these assistance programs. This misunderstanding can unnecessarily deter individuals from pursuing the EITC they rightfully deserve.