Earned Income Tax Credit

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Earned Income Tax Credit

• What Can Earned Income Tax Credit Do For You?

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Earned Income Tax Credit (EITC)

• Helps lift more than 5 million individuals
  including almost 3 million children out of
  poverty.
• Can turn a 8.80/hour job into a 9.90/hour job.

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Earned Income Tax Credit (EITC)

• EITC helps workers keep working and care for
  themselves and their children.

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Earned Income Tax Credit (EITC)

• Workers use their credits to
• Pay for transportation to the job
• Keep a car in working order
• Cover child care costs
• Help cover medical expenses
• Keep current on rent and utility payments

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Earned Income Tax Credit (EITC)

• Lets take a closer look at the credits.
• How do they work?
• Who is eligible?
• How much are they worth?

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Earned Income Tax Credit (EITC)

• How do they work?
• Most tax credits are non-refundable they
  simply reduce or eliminate the income tax you
  owe.
• Suppose you owe 500 in income taxes and qualify
  for a non-refundable credit worth 1,200. The
  credit will eliminate the amount you owe but
  you cant get the remaining 700.

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Earned Income Tax Credit (EITC)

• How is a refundable credit worth more?
• Suppose you owe 500 in income taxes and qualify
  for a refundable credit worth 1,200. The credit
  will eliminate the amount you owe and the IRS
  will send you a check for the remaining 700.

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Earned Income Tax Credit (EITC)

• What if you earn too little to owe any tax at
  all?
• Suppose you owe no income tax, but you qualify
  for a refundable credit worth 1,200. The IRS
  will send you a check for 1,200 the full
  amount of the credit.

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Earned Income Tax Credit (EITC)

• EITC is a tax break for people who work but
  dont earn a high income. To claim the EITC on
  your 2007 tax return, you must meet the following
  requirements
• You must have earned income from employment or
  from self-employment.

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Earned Income Tax Credit (EITC)

• Earned income includes
• Taxable wages, salaries and tips
• Net earnings from self-employment
• Union strike benefits
• Long-term disability benefits received prior to
  retirement age

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Earned Income Tax Credit (EITC)

• Earned income includes
• If you received nontaxable combat pay, you may
  choose to include it in your earned income.
• Earned income doesnt include
• Pensions, alimony, child support, TANF

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Earned Income Tax Credit (EITC)

• For Tax Year 2007 your earned income and adjusted
  gross income must be less than
• 37,783 (39,783 married filing jointly) with two
  or more qualifying children
• 33,241 (35,241 married filing jointly) with one
  qualifying child
• 12,590 (14,590 married filing jointly) with no
  qualifying children.

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Earned Income Tax Credit (EITC)

• The Tax Year 2007 maximum credit is
• 4,716 with two or more qualifying children
• 2,853 with one qualifying child
• 428 with no qualifying children.

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Earned Income Tax Credit (EITC)

• Other qualifying requirements
• Your investment income for 2007 (such as
  interest) must be 2,900 or less.
• Your filing status cannot be married, filing
  separately.
• You must be a US citizen or resident alien all
  year, or a nonresident alien married to a US
  citizen or resident alien and filing a joint
  return.

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Earned Income Tax Credit (EITC)

• You cannot be a qualifying child of another
  person.
• If you dont have a qualifying child, you must
• Be age 25, but under 65 by 12/31/07.
• Live in the US for more than 6 months.
• Not qualify as a dependent of another person.

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Earned Income Tax Credit (EITC)

• Who is a qualifying child?
• A son, daughter, stepchild, foster child,
  brother, sister, stepbrother, stepsister, or a
  descendant of any of them.
• At the end of the year was under age 19, or
  under age 24 and a full-time student, or any age
  if permanently and totally disabled at any time
  during the year.

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Earned Income Tax Credit (EITC)

• Who is a qualifying child?
• An adopted child, including a child placed with
  you for adoption, is treated as your biological
  child.
• A foster child is any child placed with you by an
  authorized placement agency or a court.

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Earned Income Tax Credit (EITC)

• What if you have the same qualifying child as
  someone else?
• Only one person can claim the child as a
  qualifying child for these benefits. The other
  person cannot claim any of those benefits using
  that qualifying child.

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Earned Income Tax Credit (EITC)

• Social Security Numbers
• You, your spouse (if filing jointly) and any
  qualifying child you list on Schedule EIC must
  have a valid Social Security Number issued by the
  Social Security Administration.

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Earned Income Tax Credit (EITC)

• If you qualify for EITC
• In most cases, all you need is your tax return
  and instructions1040,1040A or 1040EZ.
• If you are claiming a qualifying child, you must
  complete and attach Schedule EIC to your return.

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Advance Earned Income Tax Credit (EITC)

• If you expect to quality for EITC for Tax Year
  2008, you can get part of the credit in your
  paycheck during the year. To get advance
  payments, you must
• Receive wages.
• Expect to be eligible for EITC and expect to be
  able to claim at least one qualifying child.

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Advance Earned Income Tax Credit (EITC)

• Complete Form W-5, Earned Income Credit Advance
  Payment Certificate, and give it to your employer.

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Advance Earned Income Tax Credit (EITC)

• Workers should not choose the Advance EITC if
  they
• Hold more than one job
• Have a working spouse, unless both spouses take
  the Advance EITC.
• Expects big increase in income during the year
  (new job, marriage, etc.).

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Advance Earned Income Tax Credit (EITC)

• Workers cannot get the Advance EITC if they
• Do not have qualifying children.
• Get paid day by day.
• Do not have Social Security and Medicare taxes
  withheld from their pay.
• Have more than 2,900 investment income.

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Tax Credits and Other Public Benefits

• Income
• EITC not considered income for specified
  Federal programs including Food Stamps, SSI,
  public housing, Medicaid. States determine
  whether EITC counts for other programs including
  TANF, child care, and energy assistance.

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Tax Credits and Other Public Benefits

• Resources
• Rule for most benefit programs
• EITC refunds not counted as a resource during the
  month the refund is received and the following
  month.
• Exceptions EITC is not counted as a resource for
  Food Stamps for 12 months.
• In NH TANF not impacted by EITC.
• Savings in IDAs not counted as resource.

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Other Credits and Federal Benefits

• What is the Child Tax Credit (CTC)?
• The CTC is a nonrefundable credit that reduces
  the amount of taxes owed, based on the number of
  qualifying children per household. It may be as
  much as 1,000 per qualifying child depending on
  family income.

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Other Credits and Federal Benefits

• What are Food Stamps?
• The Food Stamp Program was created to help
  low-income families and individuals purchase
  nutritious foods. The Food Stamp benefit is
  delivered via a debit card for convenience to
  Food Stamp Program families.

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The High Cost of Commercial Tax Preparation

• When its time to file a tax return, many workers
  seek help from a commercial tax preparer.
• 68 of EITC claimants use commercial tax
  preparers.
• The average fees range from 85-300 for e-file.

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The High Cost of Tax Preparation

• Quick Refunds
• Very high-interest loans (can be over 180
  interest rate).
• Can be an additional 80 fee or more.
• Some preparers charge a for the EITC refund
  driving fees even higher.

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The High Cost of Tax Preparation

• BUT, you dont have to worry.
• Tax returns can be prepared for free by IRS
  certified professionals.

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