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Calculate Family Working Tax Credit - PowerPoint

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					Credit Where Credit is
  Due: Tax Credits for
Families with Children
                      Presentation by:
        Cristina Begoña Martin Firvida
                       Senior Counsel
              cmartinfirvida@nwlc.org
Times are tough and families
need more resources to make
ends meet …
But policy
makers have
not increased
child care
funding!
Wouldn’t it be great if families
could have more money for
child care expenses?
For eligible families, that is exactly what
happens when they claim the federal and
state tax credits to which they are entitled!

   The federal Child and Dependent Care Tax Credit can
    be worth up to $2,100.
   The federal Earned Income Tax Credit can be worth
    up to $4,204.
   The federal Child Tax Credit can be worth up to
    $1,000 per child.
   Oregon also offers its own child and dependent care
    tax credit and earned income credit, and an
    additional working family child care credit!
Let’s take a closer look at the
tax credits!

       How much help do tax
        credits give to families?
       How do they work?
       How do families get them?
    How much help can tax credits
    give to families with children?

    A LOT!

   In 2001, families received over $58 billion in
    federal tax assistance from the Child and
    Dependent Care Tax Credit, the Earned
    Income Tax Credit, and the Child Tax Credit!
A significant amount of tax
assistance goes to families with
child care expenses and to low-
income families.
   In 2001, over 65,000 Oregon families received more
    than $2.5 million from the federal Child and
    Dependent Care Tax Credit.

   In 2001, over 200,000 Oregon families and
    individuals received more than $3 million from the
    federal Earned Income Tax Credit -- almost $2.7
    million was in the form of a refund!
A significant amount of tax
assistance is also offered to
families by Oregon.

   More than 45,000 families in Oregon receive over
    $6 million annually from the Oregon child and
    dependent care credit.
   Almost 26,000 families in Oregon receive over
    $13 million annually from the Oregon working
    family child care credit.
   Over 150,000 families in Oregon receive over $10
    million from the Oregon earned income credit.
Good news -- these credit
amounts are EXPANDING because
of recent changes in federal and
Oregon tax law!
   The federal Child and Dependent Care Tax Credit increased
    this tax year for the first time in over twenty years!

   The Child Tax Credit increased this tax year to $1,000 per
    child for eligible families.

   The Earned Income Tax Credit increased in value last year
    for some married couples because of a change in law and
    this year for all EITC filers because of inflation.
Better still, your state child care
credits are also expanding
because of changes in federal law!
   The Oregon child and dependent care credit uses
    the federal child and dependent care credit
    parameters to figure its value. As the federal
    credit expands for the first time in over twenty
    years the Oregon credit will automatically expand
    as well!

   The Oregon earned income credit is also growing
    as the value of the federal credit expands.
And best of all, a change in Oregon
law will give more child care help to
Oregon families beginning this year!
   This year for the
    first time the Oregon
    working family child
    care credit will be
    REFUNDABLE!!

   This means more
    money back for low-
    income families who
    use child care!
So, tax credits are
valuable!



But how do
they work?



Time for some Tax 101!
You and I are created equal,
BUT TAX CREDITS ARE NOT!

   Most tax credits are “non-refundable.” That is,
    they simply reduce or eliminate the federal or
    state income tax that someone owes.
   Example: Lucy and Ricky owe $500 in
    income taxes and qualify for a non-
    refundable tax credit worth $750. The credit
    will eliminate the amount Lucy and Ricky owe
    – but they cannot get the remaining $250.
Some Credits are More Equal
Than Others . . .
   Refundable credits are special because you can
    get their full value without regard for how much
    tax liability you may have!
   First Example: Lucy and Ricky owe $500 in
    income taxes and qualify for a refundable credit
    worth $750. The credit will eliminate the amount
    of taxes they owe – and they will receive the
    remaining $250 in a check from the government!
   Second Example: Lucy and Ricky owe no
    income tax and they qualify for a refundable
    credit worth $750. They will receive the full
    amount of the credit -- $750 – in a check from the
    government.
So, which are the refundable credits?
   The federal Earned Income Credit is refundable.

   The federal Child Tax Credit is refundable for some families.

   The Oregon working family child care credit is refundable
    beginning this tax year!

   SADLY, the federal Child and Dependent Care credit is not
    refundable – but it is still very valuable to families with child
    care expenses – and remember, most of your states use it to
    calculate your state child care credit amount!

   The Oregon child and dependent care credit and earned income
    credit are not refundable. Even though the child & dependent
    care credit is not refundable, the amount of the credit that
    exceeds tax liability can be carried over for up to five years.
And now for the fine print!
The Child and Dependent Care Tax Credit

   The Child and Dependent Care Tax Credit is calculated as a
    percentage of qualifying child and dependent care expenses.

   Qualifying expenses can be as much as $6,000 for two or more
    children or dependents or $3,000 for one child or dependent.

   Families with adjusted gross income of $15,000 or less receive
    a credit equal to 35% of qualifying expenses, for a maximum of
    $2,100 for two or more children or dependents or $1,050 for one
    child or dependent.

   The percentage a family can claim decreases as income
    increases, until it reaches 20% for all families with adjusted
    gross income above $43,000. The maximum these families can
    get is $1,200 for two or more children or dependents or $600 for
    one child or dependent.
Three important things to remember
about the Child and Dependent Care
Tax Credit:
   The care must be employment-related – that is, the
    care must be necessary for the adults in a family to
    work or look for work.

   Any kind of child care – in a center, in a family day
    care home, in a church, or a neighbor’s or relative’s
    house – qualifies.
     If a provider cares for more than 6 children, the
      provider must follow all applicable state and local
      laws and regulations.

   A child means a child under age 13.
An example …

 Lucy finally gets a part in the show! Now she needs
 someone to take care of Little Ricky while she and
 Ricky work on the show. She pays Mrs. Trumbull
 $4,000 for the care. The show is a hit and the
 Riccardos report $50,000 in adjusted gross income.

 The Riccardos can claim $600 as a Child and
 Dependent Care Tax Credit (20% of $3,000, the
 maximum in qualifying expenses for one child).
The Oregon Child & Dependent
Care Credit
   The Oregon child and dependent care credit is
    calculated as a percentage of the federal Child and
    Dependent Care Tax Credit, based on federal
    taxable income.
   Families with federal taxable income of $5,000 or
    less receive 30% of their federal dependent care
    credit.
   The percentage a family can claim decreases as
    income increases until it reaches 4% for families
    with federal taxable income between $35,001 and
    $45,000. Families with taxable income over
    $45,000 are NOT able to claim this credit.
The Oregon Working Family
Child Care Credit
   The Working Family Child Care Credit is an additional REFUNDABLE
    tax credit for families with an adjusted gross income between $6,750
    and 250% of the federal poverty level ($38,000 for a family of three or
    $46,000 for a family of four).

   The Working Family Child Care Credit is calculated as a percentage of
    qualifying child care expenses for a child under 13 or a disabled child
    up to age 18.

   This credit can be up to 40% of child care expenses for a family with
    an adjusted gross income 200% or less of the federal poverty level
    (about $30,500 for a family of three or $36,800 for a family of four).

   The percentage a family can claim decreases as income increases,
    until it reaches 8% for families with adjusted gross income between
    240% ($36,600 for a family of three or $44,200 for a family of four) and
    250% of the federal poverty level.
The Federal Child Tax Credit

   A family can claim $1,000 per child under age 17, no
    matter how many children there are. NO child care
    expenses are needed to claim this credit!

   Example: Mike and Carol Brady have 6 children.
    They can claim a $6,000 Child Tax Credit.

   But if a family does not owe enough taxes to use all
    of its Child Tax Credit, a special formula is used to
    determine how much of the credit is refundable.
The Child Tax Credit -- Refund

   The formula for the Child Tax Credit refund is
    this: a family can receive as a child tax
    refund either 10% of its income above
    $10,500 or the amount of the child tax which
    remains after applying the credit to the
    family’s tax liability, whichever is less.

   Example: Mike and Carol have 6 children and
    a $30,000 income. They owe no income
    taxes. They can get a $1,950 child tax refund
    (10% of the difference between 30,000 and
    $10,500 is $1,950, which is less than $6,000).
Earned Income Tax Credit
   The Earned Income Tax Credit provides a tax
    reduction and a wage supplement to low- and
    moderate- income working families.
   A individual raising two or more children who
    earned less than $33,692 ($34,692 if married) in
    2003 can get up to $4,204 from the EITC.
   A individual raising one child who earned less
    than $29,666 ($30,666 if married) in 2003 can get
    up to $2,547.
The structure of the Earned Income
Tax Credit is Unique.

   The Earned Income Tax Credit is designed
    as a work incentive. It increases in value as
    wages increase, up to the maximum amount.
    It then decreases in value gradually.
   The structure of the credit makes it very
    valuable for families trying to escape poverty,
    but makes it very difficult to guess the value
    of the credit for a particular family without the
    aid of a tax table.
Three important things to remember
about the Earned Income Tax Credit:

   The two factors that influence the amount of
    EITC a family receives are their income and the
    number of children they have – no child care or
    other expenses are required to claim it.

   A child means a child under age 19 or under age
    24 if he or she is a full-time student.

   Families can receive their Earned Income Tax
    Credit in advance -- that is, in their paycheck
    each pay period -- by completing Form W-5.
Oregon Earned Income Credit
   Oregon also provides a state earned income
    credit
   This credit is 5% of the federal Earned
    Income Tax Credit claimed.
   Unlike the federal Earned Income Tax Credit,
    this credit is nonrefundable and can only be
    used to decrease state tax liability.
Can you remind me again, how old
may children be to claim these
credits?

   If you are claiming the Child and Dependent Care Tax
    Credit, the Oregon Child and Dependent Care Credit
    or the Oregon Working Family Child Care Credit , a
    qualifying child must be under age 13.

   If you are claiming the Child Tax Credit a qualifying
    child must be under age 17.

   If you are claiming the Earned Income Tax Credit, a
    qualifying child must be under age 19 or under age
    24 if he or she is a full-time student.
Will refunds from these credits
affect benefit eligibility?

   Normally, no!

   The amount of any Child Tax Credit refund or Earned
    Income Tax Credit refund cannot be used to determine
    eligibility for Medicaid, Supplemental Security Income, Food
    Stamps, or low-income housing, or the amount of
    assistance any of those provide.

   A Child Tax Credit refund cannot be used to determine
    eligibility for or amount of TANF benefits.

   States are allowed to develop rules on whether an Earned
    Income Tax Credit refund can be used to determine
    eligibility for and amount of TANF benefits. Oregon does
    not count EITC in this way.
These credits are great! How
do families get them?
   To claim the three federal credits, a family must file
    the IRS form 1040 or 1040A.
   To claim the federal Dependent Care Tax Credit, a
    family must also fill out Form 2441 or Schedule 2.
   To claim a federal Child Tax Credit refund, a family
    must also file Form 8812.
   To claim the federal Earned Income Tax Credit, a
    family must file Schedule EIC.
   To claim the Oregon credits, you fill in lines 35, 36
    and 38 on the Oregon tax form 40.
Special Rules to Remember :
   A family must have a social security number for each
    qualifying child they claim for all three credits. If a social
    security number is not available for a child, a family may use
    an ITIN number for a child to claim the dependent care credit
    and child tax credit.

   To claim the dependent care credit, you must also provide
    basic information about your child care provider, including
    an identification number (social security or employer
    identification number).

   A family filing their return with an ITIN number -- that is,
    someone who is not working here legally -- may NOT claim
    the EITC.

				
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