Federal Income Tax Credits

1
Federal Income Tax Credits
2
Tax Credits

• for reduction in amount of income tax owed
• Unlike deductions where the benefit depends on
  your marginal tax bracket
• SOME credits are refundable
• you can get back even if you do not owe taxes
• must file a tax return to collect

3
Objectives (be able to)

• 1. explain EITC child dependent care credit
• 2. determine eligibility for EITC Child Credit
• 3. know approximate dollar amounts of EITC and
  maximum income amounts
• 4. estimate EITC payments using the online
  calculator or print table
• 5. explain the impact of EITC on eligibility for
  food stamps, Medicaid public housing
• 6. list main criteria for eligible children
• 7. describe the Advance EITC and how to apply
• 8. know if full-time college students are eligible

4
Earned Income Tax Credit (EITC)
5
Earned Income Tax Credit for Low Income Workers

• Credit
• for reduction in tax
• Refundable credit
• allows refund gt amount of tax due
• may qualify even if you dont owe taxes
• must file a tax return to collect EITC

6
EITC

• Amount of credit based on income (AGI) family
  size
• Must file tax return to claim the credit
• Even if you dont owe taxes
• Can arrange Advance payments
• dont need to wait until end of tax year
• receive monthly payments instead

7
EITC Eligibility

• Must be employed
• Must have valid SS
• Lots of rules apply
• 2007 maximum income
• 39,783 if married filing jointly (gt 1 kid)
• 14,590 if married filing jointly (no kids)
• 12,590 if single, no eligible children

8

• Do you Qualify?
• http//www.irs.gov/individuals/article/0,,id96406
  ,00.html
• Outreach Kit
• http//www.cbpp.org/eic2008/
• EITC Estimator
• http//www.cbpp.org/eic2007/calculator/eitcchoose.
  htm

9
EITC Summary

• Income tax credit for low income workers
• Advance EITC
• Dont wait until end of year to collect
• Underutilized- lots of eligible workers fail to
  claim the credit
• Some states (Not UT) offer EITC

10
Child Dependent Care Credit
11
Child Dependent Care Credit

• Parents can claim up to 3,000 in dependent care
  expenses per child (or adult)
• up to 6,000 for two or more children
• Unlike EITC, child care credit is NOT refundable
• families earning too little to pay federal
  income tax cannot use this credit
• The EIC and CTC do not affect a familys
  eligibility for child care credit.

12
Amount of Child Care Credit

• depends on
• the number of children or dependents in care,
• a familys income, and
• the amount the family paid for care during the
  year.
• It can be as much as
• 1,050 for families with one child or dependent
  in care
• 2,100 for families with more than one child or
  dependent in care.

13
Post-Secondary Education Tax Credits
14
Hope Credit Lifetime Learning Credit

• Not refundable (must owe taxes to benefit)
• Pay for qualified education expenses for self,
  spouse, or dependents
• Tuition and fees
• Colleges and vocational schools
• 2007 AGI lt57,000 (112,000 if married)
• Claim one or the other, not both

15
Hope Credit

• Student in 1st or 2nd year of college
• Pursuing undergraduate degree
• 100 of the first 1,100 eligible expenses
• 50 of the next 1,100
• Maximum credit is 1,650

16
Lifetime Learning Credit

• any point in post-secondary education
• dont need to be seeking degree
• 40 of the first 10,000 of eligible expenses
• maximum credit is 2,000/ household,
• credit is per household, not per student
• IRS Form 8863 for LLC or Hope

17
More Tax Credit Info

• http//www.cbpp.org/eic2008/additional-credits.ht
  m
• Child dependent care credit
• Savers Credit
• Roth IRAs
• Education Tax Credits
• IRS Split refund policy