Tax Credits Your Money. You Earned it. Now Claim it!

1. Tax CreditsYour Money. You Earned it. Now Claim it! Lori Zierl Family Living Educator, UW-Extension, Pierce County

2. Tax credits • Tax credits bring extra money to families through the tax system • Tax credits are subtracted from your tax liability to reduce your actual tax • They differ from a tax deduction that reduces only your taxable income

3. Non-refundable tax credit • A tax credit that can't reduce the amount of tax owed to less than zero • Examples: • Child & Dependent Care Credit • Lifetime Learning Education Credit • Child Tax Credit • Residential Energy Credits • Retirement Savings Contribution Credit

4. Refundable tax credits • Refundable means… you get cash back if your credit is higher than your tax • Examples: • Earned Income Credit • Adoption Credit • Health Coverage Tax Credit • American Opportunity Credit (partly refundable)

5. Which tax credits are we talking about today? • Earned Income Credit (federal and state) • Child Tax Credit (federal) • Homestead Credit (Wisconsin) • Education Tax Credits (federal) • American Opportunity Tax Credit • Lifetime Learning Credit

6. Federal Earned Income Tax Credit (EITC) • Must have earned income • Workers who qualify can receive a refund from the IRS even if their earnings were too small to owe income taxes

7. For the Federal EIC, you need: • Earned income from… • salary, wages, self-employment, military pay, strike benefits, private long-term disability pay • Total income for 2012 below limits: • No kids: $13,980 ($19,190 if married) • 1 child: $36,920 ($42,130 if married • 2 children: $41,952 ($47,162 if married) • 3+ children: $45,060 ($50,270) • Investment income below $3,200

8. You will also need to: • Have a valid Social Security number for self, spouse and children • File a joint return (if married) • Be a U.S. citizen or resident alien all year

9. Who is a “Qualifying Child”? • Children, stepchildren, grandchildren and adopted children • Siblings, stepsiblings – as well as descendants of such relatives • Foster child placed by agency • Under age 19 (24 if full-time student) • Any age if permanently disabled

10. “Qualifying Child” • Must live with you at least 6 months during the year (183 days for 2012) • Does NOT have to be your dependent

11. How much can you get? • With no children (age 25 to 64) – up to $475 • With 1 child – up to $3,169 • With 2 children – up to $5,236 • With 3+ children – up to $5,891

12. Wisconsin EITC • If you claim the federal EIC and have qualifying children, you qualify for the Wisconsin EIC • 1 child, you get 4% of your federal EIC (up to $127) • 2 children, you get 11% (up to $576) • 3+ children, you get 34% (up to $2,003) • No Wisconsin EIC for workers without children

13. Claiming Earned Income Credit • For Federal EIC: • File tax form 1040 or 1040A • Use Worksheet A to calculate your EIC • Complete Schedule EIC (if children) • For Wisconsin EIC: • File Wisconsin tax form 1 or 1A • Need federal EIC amount from Schedule EIC

14. Federal Child Tax Credit • Tax credit to offset cost of raising children • Federal tax credit worth up to $1000 for each qualifying child under age 17 • Qualifying child same as EITC • Must earn more than $3000 in 2012 • Must be able to claim child as a dependent and claim the exemption on the return

15. Claiming Child Tax Credit • File federal tax form 1040 or 1040A • Many filers also need Form 8812 (Additional Child Tax Credit form) • Must have SSN(Social Security Number) or ITIN (Individual Taxpayer Identification Number) • Immigrant workers with SSN or ITIN may be able to claim the CTC refund (child be either a citizen or a resident alien)

16. WI Homestead Tax Credit • Wisconsin tax credit to offset cost of property taxes or rent • Covers homeowners and renters • Available for workers and non-workers • Must be a legal Wisconsin resident all year • Must be 18 or older

17. WI Homestead Tax Credit • Household income less that $24,680 • Refundable – can get up to $1160

18. Claiming the Homestead Credit • Complete Wisconsin Schedule H or H-EZ • Attach property tax bill or rent certificate • Landlord should sign rent certificate • Can submit without full tax return • If not filing WI tax return – use form 1, 1A, or 1NPR

19. Education Tax Credits • Makes education more affordable to families and students who might not otherwise be able to pursue post-secondary education • Enables individuals to improve their job skills and increase their earning ability • Includes: • American Opportunity Tax Credit • Lifetime Learning Credit • Cannot claim both at the same time

20. American Opportunity Credit • Partially refundable (40% up to $1000 is refundable) • Worth up to $2,500 per year • Student must be pursuing undergraduate degree • Student must be in first four years of college • Must be enrolled at least half-time • Covers qualified educational expenses • Full credit if AGI less than $80,000 ($160,000 if married)

21. Lifetime Learning Credit • Non-refundable tax credit • Worth up to $2,000 per year • Student in any year of college or courses to acquire job skills • No degree or course study requirement • Enrolled in a minimum of one course • Student can’t claim AOTC • AGI less than $52,000 ($104,000 if married)

22. Claiming Education Tax Credits • File form 1040 or 1040A • Complete form 8863

23. How Tax Credits Affect Eligibility for Public Benefits • Tax refunds are not counted as income in determining eligibility for any federally-funded public benefits • Amounts saved from tax refunds are not counted toward resource limits in public benefit programs for 12 months after the refund is received

24. Where to Find Tax Forms • UW-Extension tax credit website: • http://fyi.uwex.edu/eitc/ • IRS (federal tax forms): • www.irs.ustreas.gov or www.irs.gov • Wisconsin Dept. of Revenue (state tax forms): • www.dor.state.wi.us

25. You’ve Got your Refund…Now What? • 2 General “Do” Rules • Plan ahead before spending. • Devote a portion toward long-term financial security.

26. Smart Uses • Pay down debt • Save for special events • “Sometimes” savings • Save for emergencies • Invest • Generate tax credits • Long-term savings • Special purchases

27. What Not To Do • Don’t throw away part of your money on “loan” fees just to get your refund faster. • Don’t use your refund to generate more debt. • Don’t spend your refund on small personal or household items. • Don’t loan your refund to someone else. • Don’t use your refund to sustain an unsustainable lifestyle.

28. Avoid a Tax Refund • A tax refund is the return of your earned income to you. • It is not free money or a gift from the government.

29. Contributors • Kristi Cutts, Family Living Educator • UW-Extension, Winnebago County • Ruth Schriefer, Family Living Educator • UW-Extension, Iowa County • Judi Bartfeld, Professor (Reviewer) • Food Security Research and Policy Specialist • UW-Extension and UW-Madison

30. Lori ZierlFamily Living Educator UW-Extension, Pierce County Pierce County Office Building 412 West Kinne Street, P.O. Box 69 Ellsworth, WI 54011 715-273-6781 University of Wisconsin-Extension, U.S. Dept. of Agriculture and Wisconsin counties cooperating. UW-Extension provides equal opportunities in employment and programming, including Title IX and ADA.