Columns
Monday, January 10, 2005
tax credits that reward work
It’s a harsh reality that many American families have a full-time breadwinner but are still stuck below the poverty line. 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 income 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 have earned income 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 $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. I need help! Where can I go? A. The IRS provides free assistance in several ways: 1. Through the IRS website at www.irs.gov/eitc 2. Volunteer Income Tax Assistance sites have people available to help you complete your tax return for free. Call 1-800-TAX-1040 to find a site near you. 3. Call 1-800-TAX-1040 for answers to EITC and other questions. 4. Call 1-800-TAX-3676 for a free copy of IRS forms and publications 5. If you have access to TTY/TDD equipment for the hearing impaired, call 1-800-TAX-4059
