Make Tax Time Pay! Promote the Earned Income Credit and the Child Tax Credit

1
Make Tax Time Pay!Promote the Earned Income
Credit and the Child Tax Credit

• Presentation by John Wancheck
• Organization Center on Budget and Policy
• Priorities www.cbpp.org
• Phone [phone]
• Email wancheck_at_cbpp.org

2
Many workers can make tax time pay by claiming
tax credits theyve earned!!

• The Earned Income Credit can mean extra money for
  many families, for example
• Families raising two children with income between
  10,750 to 15,000 can get 4,300.
• (Not all workers get this amount, but families
  can expect, on average, over 2,100.)

3
Wait theres more!

• Some families can get Extra Credit through the
  Child Tax Credit!
• A family could also qualify for a Child Tax
  Credit worth up to 1,000 per child.
• Workers who earn over 10,750 in 2004 can get
  a refund even if they dont owe income tax,
  (amount is based on a of their income above
  10,750).

4
The EIC is our most effective anti-poverty tool
for families!

• In 2002, the EIC lifted 4.9 million individuals
  including 2.7 million children out of
  poverty.
• The EIC can turn a 6 per hour job into an 8
  per hour job.

5
The EIC

• Reduces the tax burden on low-wage workers
• offsets income and payroll taxes
• Supplements wages
• Provides a work incentive

6
The credits help workers keep working and care
for themselves and their children.

• 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
• Buy food and other basic needs
• Keep current on rent and utility payments

7
How do the credits work?

• The EIC is sent as a refund from the IRS, even if
  the worker earns too little to owe income taxes.
• The CTC is designed to reduce income tax, but it
  can also provide an IRS refund for many
  low-income families who dont owe income taxes.
• Some families are eligible for both credits.

8
Heres how it can really add up!

• Mary earned 18,000 in 2004 and has three
  dependent children under age 17. She owes no
  income tax. She gets an EIC worth 3,472. She is
  also eligible to receive a CTC refund of 1,088.
  Together they add up to a total tax refund of
  4,560!

9

• Who is eligible?

10
Workers eligible for the EIC include

• Full-time or part-time workers, including
  self-employed workers
• Workers who also receive public benefits
• Single or married workers
• Workers raising a qualified child living in
  their home (Very low-income workers do not have
  to have a qualifying child.)
• Individuals receiving employer-paid disability
  benefits
• Immigrants who are legally authorized to work

11
How much can eligible workers earn?

• A worker raising one child, who earns less than
  30,338
• in 2004 can get up to 2,604.
• A worker raising two or more children who earns
  less than 34,458
• in 2004 can get up to 4,300.
• A worker not raising children, who is between the
  ages of 25 and 64, and earns less than 11,490 in
  2004 can get up to 390.
• (Income limits for married workers are 1,000
  higher than these amounts.)
• Investment income cannot exceed 2,650.

12
Who qualifies for the Child Tax Credit?

• Workers who earn more than 10,750 in 2004 and
  claim a child under age 17 as a dependent
• Non-custodial parents.
• Immigrant workers with ITINs.

13
Earned income What counts?

• Wages, salaries, and tips
• Net earnings from self-employment
• Employer-paid disability benefits
• Union strike benefits
• Military combat pay

14
Definition of a qualifying child

• For the EIC
• Child can be a son, daughter, grandchild,
  stepchild, adopted child, brother, sister,
  stepbrother, stepsister (or their descendents) or
  foster children placed by a government or private
  agency
• Child must have lived with the worker for more
  than half the year
• Child must be under 19 or under 24 if a full-time
  student or any age if totally and permanently
  disabled
• (If you are the qualifying child of another
  person, you cannot claim the EIC yourself.)

15
Definition of a qualifying child

• For the CTC
• Child can be a son, daughter, grandchild,
  stepchild, adopted child, brother, sister,
  stepbrother, stepsister (or their descendents) or
  foster children placed by a government or private
  agency same as EIC
• Child must be under age 17 even children with
  disabilities
• Child must be claimed as a dependent on the
  workers tax return
• Child does not have to live with the worker

16
Rules for immigrant workers

• Immigrant workers can get the EIC
• must meet the income requirements
• child must live with the worker in the U.S. for
  more than half the year
• worker, spouse and child must each have an SSN
  that authorizes work
• Immigrant workers can get the CTC
• must meet the income requirements
• child must live in the U.S. and be claimed as the
  workers dependent
• worker, spouse and child must have either an SSN
  or an Individual Taxpayer ID Number (ITIN)

17
Want to get the most out of every paycheck?

• Workers raising children can get the Advance EIC
  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
  118 per month extra take-home pay!
• Workers can get year-end refund too!

18

• Workers should not choose the Advance EIC if
  they
• Hold more than one job
• Have a working spouse, unless both spouses take
  the Advance EIC
• Expect a big increase in income during the year
  (new job, marriage to someone who also works)
• Could end up not eligible for the EIC and have
  to pay money back to the IRS

19

• Workers cannot get the Advance EIC if they
• Do not have qualifying children
• Get paid day by day
• Do not have Social Security and Medicare taxes
  withheld from their pay

20
EIC Benefits for Tax Year 2004at Various Income
LevelsThis is not a tax table. Do not use this
table to complete income tax returns.
2004 earned 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
5,000 384 1,709 2,010
8,000 265 2,604 3,210
10,000 112 2,604 4,010
12,000 0 2,604 4,300
14,000 0 2,604 4,300
16,000 0 2,287 3,882
20,000 0 1,648 3,040
20
21
(No Transcript)
22
How do you claim the credits?

• Theres no catch but you must file a tax
  return!
• Families must file either Form 1040 or 1040A
  not the 1040EZ and they must attach Schedule
  EIC for the EIC and Form 8812 for the CTC.
• Workers not raising children can file any form
  for the EIC 1040EZ is OK.
• Families raising children can get some of their
  EIC in advance in their regular paycheck up to
  about 59 in each bi-weekly check by filing a
  W-5 with their employer.

23
The high cost of commercial tax preparation

• When its 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.

24
Why would I not want a quick refund?

• Refund anticipation loans are risky
• Very high-interest loans (can be over 180 percent
  interest rate)
• Can be an additional 80 fee or more
• Some preparers charge a percentage of the EIC
  refund, driving fees even higher
• No guarantee refund will equal the loan amount

25
Promote free tax preparation assistance

• Provide alternative to preparation and loan fees
• Volunteer Income Tax Assistance (VITA) provides
  free tax filing help for low-income workers at
  community sites.
• Expand and improve VITA
• Recruit community volunteers to be trained by
  IRS.
• Community groups needed to host additional sites
  more accessible sites.
• More sites needed that can provide e-filing (IRS
  will provide software!).

26
Why is outreach needed?

• The eligible population is ever-changing,
  especially in a changing economy
• Workers not eligible in the past who lose their
  jobs mid-year could become eligible.
• Workers just entering labor force may not know
  about the credits.
• Some groups are at greater risk of missing out on
  the tax credits.

27
Who is at risk of missing out on the EIC and CTC?

• Workers not required to file returns
• 15,900 for a couple 10,250 for head of
  household 7,950 for a single filer (2004)
• New employees. Employees making the transition
  from welfare to work
• New parents including foster and adoptive
  parents
• Divorced or separated custodial parents

28
Outreach Partnerships

• Build partnerships to connect with eligible
  families and individuals
• 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
• Media
• IRS

29

• Make special efforts to
• Demonstrate how the credits can help workers meet
  other goals (paying back bills, transportation to
  work, future homeownership)
• 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

30
Make Tax Time Pay!2005 EIC CTC Community
Outreach Kit

• Updated for 2005 by the Center on Budget and
  Policy Priorities.
• Posters, flyers, fact sheets on EIC CTC rules
  and strategies for community tax credit outreach
  efforts.
• To order your free copy Email eickit_at_cbpp.org
• or call us at 202-408-1080
• See the 2004 Kit at www.cbpp.org/eic2004