Promote the Earned Income Credit and the Child Tax Credit
Presentation by: John Wancheck
Organization: Center on Budget and Policy
Phone:
Priorities www.cbpp.org
202-408-1080
Email: wancheck@cbpp.org
1

Many workers can make
by claiming tax credits
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.)
2

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 don’t owe income tax, (amount is based on a % of their income above $10,750) .
3

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.
4

 Reduces the tax burden on low-wage workers
 offsets income and payroll taxes
 Supplements wages
 Provides a work incentive
5

The credits help workers
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
6

 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 lowincome families who don’t owe income taxes.
 Some families are eligible for both credits.
7

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!
8

9

 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
10

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.
11

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.
12

Earned income: What counts?





Wages, salaries, and tips
Net earnings from self-employment
Employer-paid disability benefits
Union strike benefits
Military combat pay
13

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 fulltime student or any age if totally and permanently disabled
(If you are the qualifying child of another person, you cannot claim the EIC yourself.)
14

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 worker’s tax return
 Child does not have to live with the worker
15

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 worker’s dependent worker, spouse and child must have either an SSN or an
Individual Taxpayer ID Number (ITIN)
16

 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!
17

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
18

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
19

EIC Benefits for Tax Year 2004 at Various Income Levels
This is not a tax table. Do not use this table to complete income tax returns.
2004 earned income
$ 5,000
$ 8,000
$10,000
$12,000
$14,000
$16,000
$20,000
EIC for single workers not raising a child
$0
$0
$0
$0
$384
$265
$112
EIC for single workers raising one child
$1,709
$2,604
$2,604
$2,604
$2,604
$2,287
$1,648
EIC for single workers raising two or more children
$2,010
$3,210
$4,010
$4,300
$4,300
$3,882
$3,040

The Federal Earned Income
Tax Credit in Tax Year 2004
$5,000
$4,000
$3,000
$2,000
Maximum benefit
$4,300
$1,000
$0
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000
One child, single parent Two or more children
Note: Married couples with income in the phaseout range qualify for a higher credit than single parents — shown by dashed lines.
21

How do you claim the credits?

There’s 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.
22

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.
23

not
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
24

 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!).
25

 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.
26

 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
27

 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
28

 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
29

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@cbpp.org
or call us at 202-408-1080
See the 2004 Kit at www.cbpp.org/eic2004
30