Federal Income Tax Credits
Tax Credits
$ for $ reduction in amount of income tax owed Unlike deductions where the benefit depends on your marginal tax bracket SOME credits are refundable
you can get $ back even if you do not owe taxes must file a tax return to collect
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Objectives (be able to):
1. explain EITC & child & dependent care credit 2. determine eligibility for EITC & Child Credit 3. know approximate dollar amounts of EITC and maximum income amounts 4. estimate EITC payments using the online calculator or print table 5. explain the impact of EITC on eligibility for food stamps, Medicaid & public housing 6. list main criteria for eligible children 7. describe the Advance EITC and how to apply 8. know if full-time college students are eligible
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Earned Income Tax Credit (EITC)
Earned Income Tax Credit for Low Income Workers
Credit
$ for $ reduction in tax
Refundable credit
allows refund > amount of tax due may qualify even if you don’t owe taxes must file a tax return to collect EITC
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EITC
Amount of credit based on income (AGI) & family size Must file tax return to claim the credit
Even if you don’t owe taxes
Can arrange Advance payments
don’t need to wait until end of tax year receive monthly payments instead
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EITC Eligibility
Must be employed Must have valid SS# Lots of rules apply 2007 maximum income
$39,783 if married filing jointly (> 1 kid) $14,590 if married filing jointly (no kids) $12,590 if single, no eligible children
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Do you Qualify?
http://www.irs.gov/individuals/article/0,,id=96 406,00.html
Outreach Kit
http://www.cbpp.org/eic2008/
EITC Estimator
http://www.cbpp.org/eic2007/calculator/eitcch oose.htm
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EITC Summary
Income tax credit for low income workers Advance EITC
Don’t wait until end of year to collect
Underutilized- lots of eligible workers fail to claim the credit Some states (Not UT) offer EITC
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Child & Dependent Care Credit
Child & Dependent Care Credit
Parents can claim up to $3,000 in dependent care expenses per child (or adult)
up to $6,000 for two or more children Unlike EITC, child care credit is NOT refundable
families earning too little to pay federal income tax cannot use this credit
The EIC and CTC do not affect a family’s eligibility for child care credit.
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Amount of Child Care Credit
depends on
the number of children or dependents in care, a family’s income, and the amount the family paid for care during the year.
It can be as much as
$1,050 for families with one child or dependent in care $2,100 for families with more than one child or dependent in care.
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Post-Secondary Education Tax Credits
Hope Credit & Lifetime Learning Credit
Not refundable (must owe taxes to benefit) Pay for qualified education expenses for self, spouse, or dependents
Tuition and fees Colleges and vocational schools
2007 AGI <$57,000 ($112,000 if married) Claim one or the other, not both
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Hope Credit
Student in 1st or 2nd year of college
Pursuing undergraduate degree
100% of the first $1,100 eligible expenses +50% of the next $1,100 Maximum credit is $1,650
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Lifetime Learning Credit
any point in post-secondary education
don’t need to be seeking degree
40% of the first $10,000 of eligible expenses maximum credit is $2,000/ household,
credit is per household, not per student
IRS Form 8863 for LLC or Hope
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More Tax Credit Info
http://www.cbpp.org/eic2008/additionalcredits.htm
Child & dependent care credit Saver’s Credit Roth IRAs Education Tax Credits IRS Split refund policy
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