Money Talks! Have You Heard?
Promote the Earned Income Credit
and Child Tax Credit
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1
Did You Know…?
The Earned Income Credit (EIC)

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
2
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.
3
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
4
The Federal EIC in Tax Year 2008
6000
Maximum Benefit $4,824
Credit Amount
5000
4000
Maximum Benefit $2,917
3000
2000
1000
Maximum Benefit $438
0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Income ($)
No Children
1 Child
2 Children
Married Filing Jointly
5
Note: Married couples with income in the phaseout range qualify for a higher credit than single
parents — shown by dashed lines.
The EIC: Making a Difference
Helping Working Families Out of Poverty, 2008
Annual Income
Estimated
Poverty
Line for
Family of
Two
(including
one child)
$14,698
111%
91%
EITC
$2,917
Food Stamps
$1,884
Food Stamps
$1,884
Full-time Minimum
Wage Job* (less
withholding)
$11,451
Full-time Minimum
Wage Job* (less
withholding)
$11,451
Without EITC
With EITC
6
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.
7
How much can workers earn and
qualify for the EIC?
For tax year 2008:
Number of
children:
2 or more
children
Income less
than:
$38,646
EIC up to:
1 child
$33,995
$2,917
No children
$12,880
$438
$4,824

Income limits for married workers are $3,000 higher than
these amounts.

Investment income cannot exceed $2,950.
8
What Counts as Earned Income?
Includes:

Wages, salaries, and tips

Net earnings from selfemployment

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
9
EIC Benefits for Tax Year 2008
at Various Income Levels
2008
household
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.
10
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.
11
The EIC and CTC are “Refundable”
Tax Credits
What does this
mean?
12
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.
13
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.
14
How do the EIC and
CTC Work Together?
15
Maxine
Maxine is a single mom raising a 14-year old child.

She earns $18,000 a year.

$300 in income tax has been withheld.

Her total tax refund is $3,556!
How much of Maxine’s refund comes from the EIC?
How much from the CTC?
16
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.
17
How do We Get the CTC
Amount?
√
Calculating the CTC:

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
18
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.
19
√
Maxine’s Tax Refund
EIC
$ 2,556
CTC ($1,000)
o
Return of income taxes withheld
o
Additional CTC
Total Tax Benefit
$
$
300
700
$ 3,556
20
Child and Dependent Care Credit

Federal tax credit for expenses to care for a child
or a dependent with disabilities in order to work.


$3,000 for one child, $6,000 for two or more
Credit amount:


Reduces income tax – not a refundable credit
Maximum expenses:


√
Between 20 and 35% of expenses – depends on income
28 states also have a credit – In 12 states the
credit is refundable
21
EIC and CTC —
What are the
Differences?
22
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?
23
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
24
Definition of a “Qualifying Child”
EIC
Relationship
CTC
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

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.
25
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
26
What if Two Workers Claim
the Same Child?
√
Tiebreaker rules for resolving duplicate claims:
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.
27
Can Immigrant Workers Claim the
Tax Credits?

To claim the EIC and CTC:



EIC ONLY:


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
CTC ONLY:

Worker, spouse and child must have either an SSN or ITIN
28
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.
29
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.
30
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.
31
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

CTC
Not income for any federal, state or local program
financed even in part with federal funds
32
How do the Tax Credits Affect
Other Public Benefits?
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
33
Claiming the Credits
34
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.
35
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
36
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!
37
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
38
Filing for Free
39
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.
40
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
41
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
42
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!)
43
Reaching Out to
Promote the Credits
44
Targeting Outreach
Workers at risk of missing out on the EIC and CTC include:

Workers not required to file returns
In 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
45
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.
46
Promoting the Credits
Inform families

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
47
Promoting the Credits
Build partnerships to connect with eligible workers:










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
48
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
49
Outreach Partnership:
The Piton Foundation — Denver, CO √





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
50
Promoting the Credits
Make special efforts to:

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
51
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
Engage others in
reaching out through
their own networks
Get in position to
enrich and sustain
outreach efforts in
the future
Expand and
improve free tax
filing sites
52
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