Make Tax Time Pay! Promote the Earned Income Credit and the Child Tax Credit

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

2. Many workers can make tax time pay by claiming tax credits they’ve earned!! 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.)

3. Wait — there’s more! 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).

4. 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.

5. The EIC: • Reduces the tax burden on low-wage workers • offsets income and payroll taxes • Supplements wages • Provides a work incentive

6. The credits help workers keep 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

7. How do the credits work? • 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 low-income families who don’t owe income taxes. • Some families are eligible for both credits.

8. Here’s how it can really add up! 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!

9. Who is eligible?

10. Workers eligible for the EIC include: • 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

11. 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.

12. 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.

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

14. Definition of a “qualifying child” 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 full-time student or any age if totally and permanently disabled (If you are the qualifying child of another person, you cannot claim the EIC yourself.)

15. Definition of a “qualifying child” 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

16. 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)

17. Want to get the most out of every paycheck? • 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!

18. 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

19. 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

20. EIC Benefits for Tax Year 2004at Various Income LevelsThis is not a tax table. Do not use this table to complete income tax returns. 20

22. 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.

23. The high cost of commercial tax preparation 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.

24. Why would I not want a “quick refund?” 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

25. Promote free tax preparation assistance • 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!).

26. Why is outreach needed? • 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.

27. Who is at risk of missing out on the EIC and CTC? • 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

28. Outreach Partnerships • 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

29. 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

30. Make Tax Time Pay!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