8 Crucial Tax Facts That Can Help the Poor in 2024
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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When it comes to tax time, low-income earners may feel stressed about seeing even more of their earnings eaten up by taxes. As of 2022, the federal poverty limit for an individual was $13,590 and $27,750 for a family of four. However, even income above this level can be barely enough to scrape by in most states.
The picture isn’t all bleak. Depending on your income level, being low-income may also qualify you for crucial tax credits that can bring necessary relief.
More Breathing Room in 2024
In 2024, the IRS will use new tax brackets that low-income families will be happy to hear about, according to Miles Brooks, a CPA and a director of tax strategy at CoinLedger.
“The income subject to tax will rise to $14,600, meaning low-income families can get more room in their budgets. The higher taxable income threshold means you will not owe any taxes if you earn less, increasing your disposable income. They can keep more dollars, potentially save, or direct funds to their pressing needs.
Earned Income Tax Credit
The earned income tax credit (EITC) is a refundable tax credit that offers a maximum credit of $3,995, according to Johan Garcia, CPA, MST with After Tax Cash.
“This means that it cannot only reduce the taxes owed but also result in a refund if the credit exceeds the amount of taxes due.”
To qualify for the full credit, the taxpayer’s adjusted gross income (AGI) must be below $46,560. For those filing jointly, the maximum AGI is $53,120, he shared.
“It gives [low-income families] a financial leg-up to place a deposit on a better vehicle or catch up on their rent arrears before they are evicted,” Brooks said.
Flexible Spending Accounts (FSAs) Limits Are Rising
When it comes to paying for healthcare, the annual limits for flexible spending accounts (FSAs) are also rising, from $3,050 to $3,200, Brooks said.
“This means the economically disadvantaged population will not have to stress about choosing between catering for medical needs, which drowns families into debt, and other living expenses as the extra funds safeguard against healthcare costs.”
Child Tax Credits Are Valuable
Another tax credit the low-income can benefit from is the child tax credit (CTC), which is now at $2,000 for every qualifying child, Brooks said.
“Poor families can reduce their tax liability, as CTC provides them with a cushion that could convert into a financial advantage.”
Forthcoming Tax Policy Changes
Furthermore, there’s currently a proposed bipartisan bill (Tax Relief for American Families and Workers Act of 2024) being voted on by the House that is looking to expand the child tax credit, as well, according to Johan Garcia, CPA, MST with After Tax Cash.
What’s great is that it will be a retrospective bill that would apply to tax year 2023 tax filings.
“For a single-status filing taxpayer with a child who is claimed as a dependent, the proposed bill will raise the child tax credit to up to $3,600 if the child is under 6 years old, and up to $3,000 if the child is older than 6 years.”
The proposed bill also raises the refundable portion and proposes to incrementally increase the refundable portion of the child tax credit by $1,800 for 2023, $1,900 for 2024 and $2,000 for 2025, he said.
“This coming tax bill is great news for low-income families or individuals with a child. It offers a great benefit not only as a deduction to minimize their taxable income but also as a tax credit that’s refundable.”
Special Rules for Lump-Sum Payments
If you come into an extra chunk of cash this year, you don’t necessarily have to worry, according to Alec Kellzi a CPA with File Smart Tax.
“Low-income taxpayers who receive large lump-sum Social Security payments, insurance settlements, or other windfalls can elect special averaging to smooth the tax impact over multiple years. This prevents an unusually high-income year.”
IRS Flexibility
While people tend to fear and avoid the IRS, Kellzi said that may not be necessary.
“The IRS provides flexibility on payment plans, fines, and filing frequencies for taxpayers facing economic hardships. Low-income taxpayers can request leniency if they demonstrate an inability to pay.”
Volunteer Income Tax Assistance (VITA) Program
Another aspect that low-income individuals and families may not know about is a free tax preparation service, the IRS’ Volunteer Income Tax Assistance (VITA) program, according to Michael Hurckes, partner and compliance attorney at MAH Advising PLLC.
“VITA programs help low-income taxpayers prepare their tax returns free of charge and are a valuable resource in understanding and applying for various deductions and credits,” he said.
While it’s hard to make ends meet on a low income, these programs and tax credits can soften some of the blow and put money back into your bank account.
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