1 money talks! have you heard? promote the earned income credit and child tax credit presentation...
TRANSCRIPT
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Money Talks! Have You Heard?
Promote the Earned Income Credit
and Child Tax Credit
Presentation by:Organization:Phone:Email:
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Did You Know…?
Represents up to a 40% pay increase for some workers
Can turn a $6 per hour job into an $8 per hour job
In 2005, raised 4.1 million individuals — including 2.2 million children — above the poverty line
Is the largest public benefit program providing support to working families
The Earned Income Credit (EIC)
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Why is Outreach Needed?
As many as 20-25% of eligible workers don't claim the EIC
Up to $8 billion in EIC refunds went unclaimed in 2008
Efforts are needed to ensure eligible workers
know how to claim the EIC and other tax credits.
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What are the Earned Income Credit (EIC) and the Child Tax Credit (CTC)?
Federal tax benefits for low-income working families and individuals
Purpose: Offset income and payroll taxes
Supplement wages
Provide a work incentive
Key Features: Reduces taxes workers may owe
Even if workers don’t owe taxes, they may be eligible
Some families can claim both credits
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Cre
dit
Am
ou
nt
Note: Married couples with income in the phaseout range qualify for a higher credit than single parents — shown by dashed lines.
The Federal EIC in Tax Year 2008
0
1000
2000
3000
4000
5000
6000
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
Income ($)
No Children 1 Child 2 Children Married Filing Jointly
Maximum Benefit $4,824
Maximum Benefit $2,917
Maximum Benefit $438
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The EIC: Making a Difference
Helping Working Families Out of Poverty, 2008
Full-time Minimum Wage Job* (less
withholding)$11,451
Full-time Minimum Wage Job* (less
withholding)$11,451
Food Stamps$1,884
Food Stamps$1,884
EITC$2,917
Without EITC With EITC
An
nu
al I
nco
me
Estimated Poverty Line for
Family of Two
(including one child)$14,698
111%
91%
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How do Workers Use the Credits?
Pay for transportation to the job Keep a car in working order Cover child care costs Help cover medical expenses Buy food and other basic needs Keep current on rent and utility payments
The credits help workers keep working and care for themselves and their children.
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How much can workers earn and qualify for the EIC?
Income limits for married workers are $3,000 higher than these amounts.
Investment income cannot exceed $2,950.
Number of children:
Income less than:
EIC up to:
2 or more children
$38,646 $4,824
1 child $33,995 $2,917
No children $12,880 $438
For tax year 2008:
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What Counts as Earned Income?
Includes:
Wages, salaries, and tips
Net earnings from self-employment
Union strike benefits
Employer-paid disability benefits
Military combat pay
Doesn’t Include:
Non-taxable earned income Payroll deductions for dependent
care or retirement plans
Public benefits Social security, SSI, welfare
Other taxable income, such as: Unemployment Alimony Interest on bank accounts
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EIC Benefits for Tax Year 2008 at Various Income Levels
2008household
income
EIC for single workers not
raising a child
EIC for single workers raising
one child
EIC for single workers raising
two or more children
$ 5,000 $383 $1,700 $2,000
$ 8,000 $373 $2,720 $3,200
$10,000 $220 $2,917 $4,000
$12,000 $67 $2,917 $4,800
$14,000 $0 $2,917 $4,824
$16,000 $0 $2,876 $4,769
$20,000 $0 $2,236 $3,927
Note: This is not a tax table. Do not use this table to complete income tax returns.
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How Much Can Workers Earn and Qualify for the CTC?
Workers who earned more than $12,050 in 2008 can get a CTC refund.
CTC income limits are higher than for EIC:
$110,000 for married couples
$75,000 for single or head of household
$55,000 married filing separately
The CTC is worth up to $1,000 for each qualifying child.
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The EIC and CTC are “Refundable” Tax Credits
What does this mean?
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Most Tax Credits are “Non-refundable”
They simply reduce or eliminate the income tax you owe.
Suppose you owe $400 in income taxes and qualify for a non-refundable credit worth $1,000. The credit will eliminate the amount you owe — but you can’t get the remaining $600.
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How is a “Refundable” Credit Worth More?
Suppose you owe $400 in income taxes and qualify for a refundable credit worth $1,000. The credit will eliminate the amount you owe — and the IRS will send you a check for the remaining $600.
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How do the EIC and CTC Work Together?
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Maxine
She earns $18,000 a year.
$300 in income tax has been withheld.
Her total tax refund is $3,556!
Maxine is a single mom raising a 14-year old child.
How much of Maxine’s refund comes from the EIC?
How much from the CTC?
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Maxine’s EIC Maxine is eligible for an EIC refund worth
$2,556.
The EIC table provides this amount.
The remaining $1,000 is Maxine’s CTC refund.
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How do We Get the CTC Amount?
√
First used to reduce or eliminate any income tax owed
Workers may be able to get all or part of any remaining CTC as an additional refund (the Additional Child Tax Credit)
For the additional CTC, a family can get whichever is LESS:
The amount of the CTC that remains after income tax is eliminated, OR
15% of the family’s taxable earned income over $12,050
Calculating the CTC:
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How Does That Work for Maxine? √
A. The CTC is first used to eliminate the $300 in taxes she owes. (The IRS will pay her back.) She has $700 of the CTC remaining.
$1,000 - $300 = $700
B. The amount of Maxine’s earnings over $12,050 is $5,950. Fifteen percent of
this amount is $892. $18,000 - $12,050 = $5,950 and
$5,950 x 15% = $892
The Additional CTC is the lesser of A and B. In this case, Maxine’s Additional CTC is $700.
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Maxine’s Tax Refund √
EIC $ 2,556
CTC ($1,000)o Return of income taxes withheld $ 300o Additional CTC $ 700
Total Tax Benefit $ 3,556
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Child and Dependent Care Credit √ Federal tax credit for expenses to care for a child
or a dependent with disabilities in order to work. Reduces income tax – not a refundable credit
Maximum expenses: $3,000 for one child, $6,000 for two or more
Credit amount: Between 20 and 35% of expenses – depends on income
28 states also have a credit – In 12 states the credit is refundable
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EIC and CTC — What are the Differences?
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Different Credits — Different Rules
Who qualifies?
Definition of a “qualifying child”
Temporary absence of a worker or child
Resolving duplicate claims for a child
Eligibility for specific groups
The tax credits and other public benefits
How do you claim the tax credits?
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Who Qualifies for the EIC and CTC?
Full or part-time workers, including self-employed workers
Workers who also receive public benefits Single or married workers Workers raising a “qualifying child” living in their home
Some very low-income workers without a “qualifying child” may be able to claim the EIC
Immigrants who are legally authorized to work
CTC ONLY: Immigrant workers with Individual Taxpayer Identification
Numbers (ITINs) Some non-custodial parents
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Definition of a “Qualifying Child”
If you are a qualifying child, you cannot claim the EIC yourself.
If a child is claimed for both the EIC and CTC, the same worker must claim both credits.
EIC CTC
Relationship
Son, daughter, grandchild, stepchild, adopted child, brother, sister, stepbrother, stepsister (or their descendents) or foster child placed by a government or private agency
Residence Must live with worker in the U.S. for more than half the year
Age Under 19 or 24 if full-time student or any age if totally and permanently disabled
Under 17
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What if There is a Temporary Absence From the Home? √ If a worker or child is away from home
temporarily due to a special circumstance, it is considered as time lived at home. Examples include time away due to:
Illness School attendance Detention in a juvenile facility Business Vacation Military service Separation in a disaster
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What if Two Workers Claim the Same Child? √
1. An eligible parent always has priority to claim the credits over another eligible worker.
2. Unmarried parents who are each eligible can choose which parent claims a child.
3. Claims by two eligible relatives are decided by the IRS based on which relative lived with the child for a longer time during the year.
If each lived with the child for the same amount of time, the relative with the highest adjusted gross income receives the credits.
Tiebreaker rules for resolving duplicate claims:
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Can Immigrant Workers Claim the Tax Credits?
To claim the EIC and CTC: Must meet the income requirements Child must live with the worker in the U.S. for more than half
the year
EIC ONLY: Worker, spouse and child must each have an SSN that
authorizes work
CTC ONLY: Worker, spouse and child must have either an SSN or ITIN
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Are There Special Rules for Native Americans?
√ Eligibility requirements are the same as for other
families and individuals.
Generally, Native Americans pay federal income tax on earnings.
However, income which is exempt from federal income tax because of a specific treaty, agreement or Act of Congress doesn’t count as earned income for the EIC or the CTC.
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What About Members of the Military? √
Eligibility requirements are the same as for other workers.
Time spent away from home while serving in the military is considered a temporary absence.
Combat pay is considered non-taxable earned income:
Pay to members of the military in a combat zone is counted to determine eligibility for CTC.
Members of the military may choose to count combat pay in determining eligibility for the EIC, if it is an advantage.
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What about Non-custodial Parents? √
A child must live with a worker for more than half the year for the worker to claim the EIC and CTC.
Under one exception, a non-custodial parent can claim the CTC.
A non-custodial parent who is permitted to claim a child as a dependent as part of a divorce or separation agreement can claim the child for the CTC.
The non-custodial parent must attach IRS Form 8832, “Release of Claim for Child or Divorced or Separated Parents,” to his or her tax return, which requires the custodial parent’s signature.
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How do the Tax Credits Affect Other Public Benefits?
Income EIC
Not income for specified federal programs including: Food stamps SSI Public housing Medicaid
States determine whether EIC counts for other programs including TANF, child care, energy assistance and SCHIP
CTCNot income for any federal, state or local program financed even in part with federal funds
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Resources Rule for most benefit programs:
EIC and CTC refunds not counted as a resource during the month the refund is received and the following month
Exceptions: Food stamps – EIC not counted as resource for 12 months SSI – EIC and CTC not counted as a resource for 9 months States can determine rule for TANF Many states do not have a resource test for Medicaid or
food stamps
How do the Tax Credits Affect Other Public Benefits?
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Claiming the Credits
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How Do You Claim the Credits? You must file a tax return!
Form 1040 or Form 104A – not 1040EZ EIC - Schedule EIC CTC - Form 8812 – for CTC
Workers not raising children can file any form for the EIC — 1040EZ is OK.
Workers who did not take advantage of the EIC in the past, but were eligible to do so, can claim it for up to three previous years.
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Use Refunds to Build Savings
Tax filers can use direct-deposit to split a part of their refund into a bank account or an IRA Can’t be used with a paper check refund
Split-Refunds began in 2007
File Form 8888 with the tax return
Outreach info and materials: www.splitrefund.net
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Advance EIC: Get the Most Out of Every Paycheck
Workers raising children can get the Advance EIC in their paycheck by filing a W-5 with their employer.
Part of the EIC is added to each paycheck – for workers paid on a bi-weekly basis, as much as $130 per month extra take-home pay!
Workers can get a year-end refund too!
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The Advance EIC is Not for Everyone
Workers should not choose if they: Hold more than one job Have a working spouse, unless both spouses take the
AEIC Expect a big increase in income during the year (new job,
marriage to someone who also works) Workers could end up ineligible for the EIC and have to pay
money back to the IRS
Workers cannot get if they: Do not have qualifying children Get paid day by day Do not have Social Security and Medicare taxes withheld
from their pay
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Filing for Free
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The High Cost of Commercial Tax Preparation
When it’s time to file a tax return, many workers seek help from a commercial tax preparer.
70 percent of EIC claimants use commercial tax
preparers.
Average fees range from $85 - $120 for e-filing.
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What are RALs?
Refund Anticipation Loans Very high-interest loans
Interest rate can be over 180 percent
Processing fee can be $80 or more Some preparers charge a percentage of the EIC refund,
driving fees even higher
No guarantee refund will equal the loan amount
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Are There Alternatives to Commercial Tax Preparation?
Volunteer Income Tax Assistance (VITA)
Provides free tax filing help for low-income workers at community sites.
o Sponsored by the IRS
o In many communities across the country
o Volunteers are trained under IRS guidance
o Taxpayers can receive refund in 7-12 days through e-filing
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What is Needed to Improve VITA?
Recruit community volunteers to be trained by IRS
Enlist community groups to host additional and more accessible sites
Increase sites offering assistance in languages other than English
Establish more sites that can provide e-filing (IRS will provide software!)
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Reaching Out to Promote the Credits
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Targeting Outreach
Workers not required to file returnsIn 2008: $17,900 for a couple $11,500 for head of household $8,950 for a single filer
Workers just entering labor force
New parents Foster, adoptive
Divorced or separated custodial parents
Workers not eligible in the past who experience a reduction in income or lose their jobs
Workers at risk of missing out on the EIC and CTC include:
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Everyone Can Help Promote the EIC and CTC
You do NOT have to be a tax expert to help families claim their credits.
You can incorporate outreach activities into your routine work – and encourage your partners to do the same.
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Promoting the Credits
Outreach partners should alert families about the EIC and CTC and provide the basic information they need: Eligibility information Tax forms VITA site locations Help getting an SSN or ITIN
Inform families
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Promoting the Credits
Nonprofit health and human services providers Community organizations and institutions Faith-based groups Civic/service organizations Labor unions State and local government agencies (esp. public
benefits) Employers and local businesses Utility companies Media IRS
Build partnerships to connect with eligible workers:
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Outreach Partnership: The Piton Foundation — Denver, CO √
Nonprofit and community orgs CO CAA, United Way and over 500 nonprofits Food Bank of the Rockies distributed flyers in 3,750
Thanksgiving food bags Faith-based
3,301 churches include info in church bulletins State and local government agencies
Mailed brochures to 66 social services departments and LIHEAP recipients
Included info in applications for food stamps, Medicaid, and Section 8 housing
Sent payroll stuffers to 45,000 employees
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Public officials Denver City Councilwoman distributed flyers in 2,000
Christmas baskets to low-income residents in her district.
Employers and local businesses Denver Chamber of Commerce and Mayor sent a joint
letter to 2,400 businesses Schools
DPS sent EIC stuffers home with 72,557 primary school students
Media 30 sec. ads aired on local TV station; posters on buses
Other
Libraries, laundromats, foster care homes, labor unions, grocery stores, workforce centers
Outreach Partnership: The Piton Foundation — Denver, CO √
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Promoting the Credits
Demonstrate how the credits can help workers meet families’ needs
Address language and literacy concerns
Integrate outreach activities with partners’ routine activities
Increase the availability of free tax filing assistance and improve service
Consider a comprehensive approach to helping families obtain benefits they need
Make special efforts to:
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Spectrum of Outreach Approaches Building a Tax Credit Outreach Campaign
Distribute tax credit info and direct workers to free tax filing sites
Conduct outreach events and create opportunities to file returns
Get in position to enrich and sustain outreach efforts in the future
Engage others in reaching out through their own networks
Expand and improve free tax filing sites