Earned Income Credit Tax Table - PowerPoint

Document Sample
Earned Income Credit Tax Table - PowerPoint Powered By Docstoc
					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.
   Iowa also offers its own child and dependent care
    tax credit that is worth up to 75% of the federal Child
    and Dependent Care Tax Credit and its own earned
    income credit that is worth 6.5% of the federal
    Earned Income 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, almost 80,000 Iowa families received more
    than $31 million from the federal Child and
    Dependent Care Tax Credit.

   In 2001, over 148,000 Iowa families and individuals
    received more than $2.2 million from the federal
    Earned Income Tax Credit -- almost $1.9 million was
    in the form of a refund!
A significant amount of tax
assistance is also offered to
families by Iowa.

   More than 41,000 families in Iowa receive
    over $6.4 million annually from the Iowa
    child and dependent care credit.
   Almost 84,000 families in Iowa receive
    over 6.2 million annually from the Iowa
    earned income tax credit
And best of all -- these credit
amounts are EXPANDING because
of recent changes in federal 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 and
earned income credits are also
expanding because of changes in
federal law!

   The Iowa 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 Iowa credit will
    automatically expand as well!

   The Iowa earned income credit is also
    growing as the value of the federal credit
    expands.
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 Tax Credit is
    refundable!
   The federal Child Tax Credit is refundable for
    some families!
   The Iowa child and dependent care credit is
    refundable!
   SADLY, the federal Child and Dependent
    Care credit and the Iowa Earned Income Tax
    Credit are not refundable.
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 $30,000 in adjusted gross income.

 The Riccardos can claim $810 as a Child and
 Dependent Care Tax Credit (27% of $3,000, the
 maximum in qualifying expenses for one child).
The Iowa Child & Dependent
Care Credit
   The Iowa child and dependent is calculated as a
    percentage of the federal Child and Dependent Care
    Tax Credit.
   Families with net income of less than $10,000
    receive 75% of their federal Child and Dependent
    Care Tax Credit.
   The percentage a family can claim decreases as
    income increases until it reaches 40% for families
    with net income between $35,000 and $40,000.
   Families with income above $40,000 are NOT able
    to claim this credit.
So going back to our example …

 Lucy pays Mrs. Trumbull $4,000 for child care. The
 Riccardos report $30,000 in adjusted gross income.

 The Riccardos can claim $810 as a federal Child and
 Dependent Care Tax Credit (27% of $3,000, the
 maximum in qualifying expenses for one child).
 They can also claim $405 as an Iowa child and
 dependent care tax credit. (The percentage of the
 federal credit that they are eligible for is 50%. 50% of
 $810 is $405). Their total child care credits are worth
 $1,215.
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.
The Iowa Earned Income Tax
Credit
   Iowa also provides a state earned income
    credit
   This credit is 6.5% 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 or the Iowa Child and Dependent 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. Iowa does not
    count the 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 Iowa child and dependent care credit
    and earned income tax credit, a family must file an
    Iowa income tax form IA 1040.
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 federal 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.

				
DOCUMENT INFO
Description: Earned Income Credit Tax Table document sample