Make Tax Time Pay Presentation by John Wancheck

Make Tax Time Pay! Presentation by: John Wancheck and Roxy Caines Organization: Center on Budget and Policy Priorities Website: www. cbpp. org/eic 2007 Phone: (202) 408 -1080 Email: wancheck@cbpp. org or caines@cbpp. org 1

The Earned Income Credit (EIC) History and Background 2

EIC History n The federal EIC is a refundable tax credit available to families who work but earn low or moderate incomes n Enacted in 1975 to offset families’ Social Security payroll tax burdens. It now supplements the earnings of workers with low wages 3

The Federal EIC in Tax Year 2006 $5, 000 Maximum benefit $4, 536 Credit Amount $4, 000 Maximum benefit $2, 747 $3, 000 $2, 000 $1, 000 Maximum benefit $412 $0 $0 $5, 000 No children $10, 000 $15, 000 One child $20, 000 $25, 000 $30, 000 $35, 000 Two or more children Note: Married couples with income in the phase-out range qualify for a higher credit than single parents — shown by dashed lines. 4

The Earned Income Credit (EIC)… n Represents up to a 40% pay increase for some workers n Can turn a $6 per hour job into an $8 per hour job n In 2003, raised 4. 4 million individuals — including 2. 4 million children — above the poverty line n Is the largest benefit program providing support to working families 5

The EIC: Making a Difference Helping working families out of poverty, 2006 Annual Income Estimated Poverty Line for Family of Two (including one child) $13, 508 107% 86% EITC $2, 747 Food Stamps $2, 160 Full-time Minimum Wage Job* (less withholding) $9, 512 Without EIC With EIC 6

Workers use EIC refunds to: n n n 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 EIC helps workers keep working and care for themselves and their children. 7

General Rules to Claim the EIC 8

How much can workers earn and qualify for the EIC? For tax year 2006: Number of children: 1 child Income less than: $32, 001 EIC up to: 2 or more children No children $36, 348 $4, 536 $12, 120 $412 § § $2, 747 Income limits for married workers who file their taxes jointly are $2, 000 higher than these amounts. Investment income cannot exceed $2, 800. 9

Who qualifies for the EIC? n Full or part-time workers, including selfemployed workers n Workers who also receive public benefits n Single or married workers n Workers raising a “qualifying child” living in their home ¡ n Some very low-income workers without a “qualifying child” may be able to claim the EIC Immigrants who are legally authorized to work 10

Definition of a “Qualifying Child” EIC Son, daughter, grandchild, stepchild, adopted child, brother, sister, stepbrother, stepsister (or their Relationship 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 11

How do you claim the EIC? n A worker must file a tax return! n 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. 12

Why is outreach needed? n As many as 15 -20% of eligible workers don't claim the EIC n Workers at risk of missing out on the EIC include: ¡ Workers just entering the labor force ¡ New parents ¡ Divorced or separated custodial parents ¡ Homeless workers ¡ Workers not raising qualifying children ¡ Workers not eligible for the EIC in the past ¡ Workers who speak English as a second language ¡ Workers not required to file a tax return ¡ For Tax Year 2006: $8, 450 - single $10, 850 – head of household $16, 900 - joint 13

Maximizing the EIC 14

Advance EIC: Get the Most out of Every Paycheck n Some workers raising children can get the Advance EIC in their paycheck and get a year-end refund too! n Workers must file Form W-5 with their employer to start or stop Advance EIC payments. 15

Additional Tax Credits Child Tax Credit (CTC) n The CTC is worth up to $1, 000 for each qualifying child n Workers who earned more than $11, 300 in 2006 can get a CTC refund Child and Dependent Care Credit (DCTC) n Nonrefundable federal tax credit for expenses to care for a child or a dependent with disabilities in order to work. n Maximum expenses: ¡ $3, 000 for one child, $6, 000 for two or more 16

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 Taxpayers can receive refund in 7 -12 days through e-filing ¡ Alternative to commercial tax preparation and Refund Anticipation Loans (RALs) which can be extremely costly ¡ Locate local VITA sites by calling the IRS helpline: 1 -800829 -1040 17

The Center Can Assist with Your Tax Credit Outreach Efforts n We can: ¡ Provide Make Tax Time Pay! Outreach Kits ¡ Connect you to local organizations and coalitions that may be involved in tax credit outreach ¡ Offer technical assistance to start or expand outreach efforts in a community ¡ Conduct local trainings to inform organizations about the importance of tax credit outreach and opportunities to become involved 18

State EICs n Usually set as a % of the federal EIC — provides workers a state EIC refund n Efforts to create a state EIC in OH, MO and to expand EICs in IL, IN. New MI credit starts in 2008! WI has a strong EIC. 19

Helpful Resources n National EITC Outreach Partnership: www. cbpp. org/eitc-partnership n National Community Tax Coalition: www. tax-coalition. org n State EITC Online Resource Center: www. stateeitc. com 20