March 16, 2009
TAX CREDITS THAT REWARD WORK
It’s a harsh reality that many American families have a full-time breadwinner but are still stuck near or below the poverty line. In our time of economic downturn, it is becoming more difficult to make ends meet. Jobs at the bottom rung just do not pay enough to support a family of three. Fortunately, the federal tax code offers a hand up for these families. The Earned Income Tax Credit (EITC) allows low-wage earners to claim a “refundable tax credit.” It’s not as complicated as it sounds. The EITC is a credit that offsets taxes owed by a qualified low-income worker. If the credit exceeds the amount of taxes owed, then the earner receives a cash payment for the difference.
Let me answer some common questions about the EITC:
Q. Who is eligible?
A. The EITC is available to individuals and families who work and earned income from wages or self-employment that is less than: $11,490 ($12,490 if married filing jointly) if there is no qualifying child; $30,338 ($31,338 if married filing jointly) if there is one qualifying child and $34,458 ($35,458 if married filing jointly) if there is more than one qualifying child.
Q. What constitutes a child for purposes of the EITC?
A. A child is an individual who is: 1. your son, daughter, adopted child, grandchild, great-grandchild, stepchild, or eligible foster child; or your brother, sister, stepbrother, stepsister, or descendent of any of them, whom you care for as your own child; 2. (at the end of the tax year) under the age of 19, a full-time student under the age of 24, or permanently and totally disabled at any age; and 3. has lived with you in the U.S. for more than half of the tax year.
Q. How do I qualify for the credit?
A. You must meet the following criteria: 1. You must have a valid Social Security number 2. You need to have earned income during the year from employment or self-employment 3. You cannot have an investment income that exceeds $2,650 4. Your filing status cannot be “married filing a separate return” 5. You must be a U.S. citizen or resident alien for the entire tax year or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return. 6. You cannot use the qualifying child to earn the credit for more than one person.
Q. How do I figure my EITC?
A. If you qualify, you may: 1. Figure the credit using the Earned Income Credit (EIC) Worksheet in the instruction booklet for Form 1040, Form 1040A or Form 1040EZ and the EIC Table in the instruction booklet. 2. Have the IRS figure your EITC for you. To do this, use the contact information in your tax booklet.
Q. How did the American Recovery and Reinvestment Act affect EITC?
A. The bill temporarily increased the earned income tax credit for working families with three or more children. Right now the earned income tax credit has been increased to forty-five percent (45%) of the family’s first $12,570 of earned income for families with three or more children and would increase the income level before the tax credit starts being .
Q. I need help! Where can I go?
A. For more information, you can contact the IRS by visiting www.irs.gov/eitc or calling 1-800-TAX-1040.