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Promote the Earned Income Credit

And Child Tax Credit

Date:

Presentation by:

Organization:

Phone:

Email:

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What are the Earned Income Credit (EIC) and the Child Tax Credit (CTC)?

Federal tax benefits for low-income working families and individuals

Purpose: Offset income and payroll taxes

Supplement wages

Provide a work incentive

Key Features: Reduces taxes workers may owe

Even if workers don’t owe taxes, they may be eligible

Some families can claim both credits

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Medical Expenses

TransportationRent & Utilities

Basic Needs

Child Care

Auto Repairs

The credits help workers keep working and care for themselves and their children.

How do Workers Use the Credits?

Why is Outreach Needed?

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75 – 80% Claim EIC 20 - 25% Do Not Claim EIC

EIC Eligible Workers

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Why is Outreach Needed?

Nationally, over $10 billion in EIC refunds may have gone unclaimed in 2012

Efforts are needed to ensure eligible workers

know how to claim the EIC and other tax credits.

Impact of the EIC and CTC

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Did You Know…?

As much as a 45% pay increase

$8/hour job $10+/hour job

The Earned Income Credit (EIC) Boosts Workers’ Income

4.9 Million Children

4.5 Million Adults

Did You Know…?

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The EIC & CTC Lift More than 9 Million Above the Poverty Line

2011

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How Much Can Workers Earn and Still Qualify for the EIC?

Income limits for married workers are $5,340 higher than these amounts.

Workers not raising children must be between the ages of 25 and 64.

Investment income cannot exceed $3,300.

Number of children:

Income less than: EIC up to:

3 or more children $46,227 $6,044

2 children $43,038 $5,372

1 child $37,870 $3,250

No children $14,340 $487

For Tax Year 2013:

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The Federal EIC in Tax Year 2013

Workers with 3 or More Children

The Federal EIC in Tax Year 2013

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EIC Benefits for Tax Year 2013 at Various Income Levels

2013household

income

EIC for single

workers not raising

a child

EIC for single

workers raising one

child

EIC for single

workers raising two

children

EIC for single

workers raising three or

more children

$ 5,000 $383 $1,700 $2,000 $2,250

$ 8,000 $485 $2,720 $3,200 $3,600

$10,000 $332 $3,250 $4,000 $4,500

$12,000 $179 $3,250 $4,800 $5,400

$14,000 $26 $3,250 $5,372 $6,044

$16,000 $0 $3,250 $5,372 $6,044

$20,000 $0 $2,856 $4,852 $5,523

EIC Impact on Annual Wages

$8.00/ hour job + EIC = $10/hour job

Annually:

$16,000 + EIC = $19,250

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Single worker raising one child:

The Child Tax Credit

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How Does the CTC Work?

1.Reduces or eliminates any income tax owed or withheld.

2.Workers may get any remaining CTC as an additional refund also referred to as the Additional Child Tax Credit (ACTC).

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How Much Can Workers Earn and Qualify for the CTC?

Workers who earned more than $3,000 in 2013 can get a CTC refund.

Income less than: Filing status:

$110,000 Married

$75,000 Single or Head of Household

$55,000 Married filing separately

The CTC is worth up to $1,000 for each qualifying child.

How do the Credits Work?

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What Counts as Earned Income?

Includes:

Wages, salaries, and tips

Net earnings from self-employment

Union strike benefits

Employer-paid disability benefits

Military combat pay

Doesn’t Include:

Non-taxable earned income Payroll deductions for dependent

care or retirement plans

Public benefits Social security, SSI, welfare

Other income, such as: Unemployment Alimony and child support Interest on bank accounts Investment income

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The EIC and ACTC are “Refundable” Tax Credits

What does this mean?

Most Tax Credits are “Non-refundable” They simply reduce or eliminate the income tax you owe.

For Example:

$1,000 - $400 = $600

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Non-refundable Tax Credit Income Taxes Owed Remaining Tax Credit

How is a “Refundable” Credit Worth More?

$1,000 - $400 = $600

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Refundable Tax Credit Income Taxes Owed Remaining Tax Credit

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Meet Maxine

She earns $19,000 this year.

$225 in income tax has been withheld.

Her total tax refund is $4,015!

Maxine is a single mom raising a 6-year old son.

How is this possible?

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Maxine’s Tax Refund

EIC $ 3,015

CTC + $ 1,000

Total Tax Benefit $ 4,015

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How do We Get the CTC Amount? √

It first reduces or eliminates any income tax owed

Then, workers may get any remaining CTC as an additional refund

For the Additional CTC, a family can get whichever is LESS:

A. The amount of the CTC that remains after income tax is eliminated, OR

B. 15% of the family’s taxable earned income over $3,000

Calculate the CTC:

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How Does That Work for Maxine? √

A. Remaining CTC after income tax is eliminated:

$1,000 - $225= $775

OR

B. 15% of Maxine’s earned income over $3,000: $19,000 - $3,000 = $16,000 and

$16,000 x 15% = $2,400

The Additional CTC is the lesser of A and B.

In this case, Maxine’s Additional CTC is $775.

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Maxine’s Tax Refund √

EIC $ 3,015

CTC ($1,000)Return of income taxes withheld $ 225Additional CTC + $ 775

Total Tax Benefit $ 4,015

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How Do You Claim the Credits? You must file a tax return!

Form 1040 or Form 1040A – not 1040EZ EIC - Schedule EIC CTC – Schedule 8812 – for CTC

Workers not raising children can file any form

Eligible workers can claim EIC and CTC refunds for up to 3 previous years

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EIC and CTC Rules —What are the Differences?

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Who Qualifies for the EIC and CTC?

Workers who are: Working full-time, part-time or self-employed Also receiving public benefits Single or married Raising a “qualifying child”

Some very low-income workers without a “qualifying child” may be able to claim the EIC

Immigrants legally authorized to work

CTC ONLY: Immigrant workers with Individual Taxpayer Identification

Numbers (ITINs) Some non-custodial parents

Types of Families Who Claim the EIC & CTC

Married and unmarried parents Step-parents

Grandparents, great-grandparents Grandparent with child and grandchild

Aunt or uncle

Older brother or sister Step-brother or step-sister Half-brother or half-sister

Foster and adoptive parents30

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Definition of a “Qualifying Child”

If you are a qualifying child, you cannot claim the EIC yourself.

If a child is claimed for both the EIC and CTC, the same worker must claim both credits.

EIC CTC

Relationship

Son, daughter, grandchild, stepchild, adopted child, brother, sister, stepbrother, stepsister (or their descendants) or foster child placed by a government or private agency

Residence Must live with worker in the U.S. for more than half the year

Age Under 19 or 24 if full-time student or any age if totally and permanently disabled

Under 17

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Filing for Free

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62% Use Commercial Tax Preparers

38% Self-Prepareor Use Free Filing Programs

When it’s time to file a tax return, many workers seek help from a commercial tax preparer.

Average fees range from $85 - $120 for e-filing.

The High Cost of Commercial Tax Preparation

EIC Claimants

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What are RALs & RACs?Refund Anticipation Loans (RALs)

Very high-interest loans Interest rate can be > 180 percent; processing fee can

be $80 or more No guarantee refund will equal the loan

amount

Refund Anticipation Checks (RACs) Replacing usage of RALs

Temporary bank account established to receive refund and issue as a check

No faster than direct deposit

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Are There Alternatives to RALs and Commercial Tax Preparation?Volunteer Income Tax Assistance (VITA)

Free tax filing help for low-income workers at community sites. IRS Toll-free Locator: 1-800-906-9887

In many communities across the country

Volunteers are trained under IRS guidance

Taxpayers can receive refund in 7-12 days through e-filing

VITA and TCE sites are listed at www.irs.gov (key word search “site list”)

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What is Needed to Improve VITA?

Recruit community volunteers to be trained by IRS

Enlist community groups to host additional and more accessible sites

Increase sites offering assistance in languages other than English

Establish more sites that can provide e-filing (IRS will provide software!)

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Special Rules & Eligibility for

Specific Groups

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What if There is a Temporary Absence From the Home? √

If a worker or child is away from home temporarily due to a special circumstance, it is considered as time lived at home.

Examples include time away due to:

Illness School attendance Detention in a juvenile facility Business Vacation Military service Separation in a disaster

Standard rule for resolving duplicate claims:

Parents have priority

An eligible parent always has priority to claim the credits over another eligible worker.

An eligible parent can allow another eligible worker to claim his or her child if the other worker has a higher income.

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What if Two Workers Claim

the Same Child? √

Unmarried parents Choose who claims a child, OR IRS decides between two claims, based on:

Length of residency with child during year or Highest AGI if residency is the same for each parent

Two or More Eligible relatives If an eligible parent does not claim, the relative with the

highest AGI may claim the child, if that is higher than any eligible parent’s income

If no parent can claim the child, the relative with the highest AGI is eligible

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Tiebreaker rules for resolving duplicate claims:

What if Two Workers Claim the Same Child? √

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Can Immigrant Workers Claim the Tax Credits?

√ To claim the EIC and CTC:

Must meet the income requirements Child must live with the worker in the U.S. for more than

half the year

EIC ONLY: Worker, spouse and child must each have an SSN that

authorizes work

CTC ONLY: Worker, spouse and child must have either an SSN or ITIN

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Are There Special Rules for Native Americans?

√ Same eligibility requirements

Generally, Native Americans pay federal income tax on earnings.

Exception: Income exempt from federal income tax because of a specific treaty, agreement or Act of Congress

For example, tribes in Oregon and Washington have fishing rights established by treaties with the U.S., so income from fishing by tribal members is exempt from federal income tax.

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What About Members of the Military? √

Same eligibility requirements

Military service = temporary absence

Combat pay is considered non-taxable earned income:

For CTC — combat pay counts towards income eligibility

For EIC — can choose to count combat pay if it is advantageous

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What about Non-custodial Parents? √

Non-custodial parent exception for CTC:

If permitted to claim a child as a dependent as part of a divorce or separation agreement, can claim the child for the CTC.

Must attach IRS Form 8332, “Release/ Revocation of Release of Claim to Exemption for Child by Custodial Parent,” to tax return.

Form requires the custodial parent’s signature

What about Married Workers Who Want to File Separate Tax Returns? √

To claim the EIC, married workers must file a joint tax return.

One exception:

A separated parent can claim the EIC without filing a joint tax return with the other parent if:

1) The parents have lived apart for the last six months of the year. 2) The child lived with one of the parents for more than half of the

year. 3) That parent paid more than half the cost of maintaining the

household for the year and is eligible to claim the child as a qualifying child.

Under these circumstances, the parent living with the child is considered unmarried for tax purposes and can file as “head of household” and may claim the EIC.

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Other Important Tax Benefits

American Opportunity Tax Credit √

Expands & renames Hope Credit

Worth up to $2,500

40% of the credit — up to $1,000 — can be claimed even if no income tax is owed

Can be claimed for first 4 years of college

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Child and Dependent Care Credit √

Federal tax credit for expenses to care for a child or a dependent with disabilities in order to work.

Reduces income tax – not a refundable credit

Maximum expenses: $3,000 for one child, $6,000 for two or more

Credit amount: 20 - 35% of expenses – depending on income

28 states also have a credit: in 13 states the credit is refundable

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New Health Insurance Premium Tax Credit

Federal tax credit for the uninsured -- pays a share of health insurance premiums, for coverage in 2014

Advance Credit - paid monthly in 2014 by IRS to private insurance plan chosen by consumer through Marketplace agency in state

Consumer may have a monthly premium contribution Advance credit will be reconciled with income shown on 2014 tax

return

Most who are now uninsured must get coverage, or pay a penalty to IRS

Those with existing coverage aren’t required to change Several exemptions from penalty: incl. low income, insurance choices

are unaffordable, hardship, ineligible immigrants, Native Americans

Who Qualifies for the New Credit?

Who qualifies for the credit: Families and individuals with income between 100%-400% of

poverty line

Must enroll between Oct. 1, 2013 – Mar. 31, 2014

How much do people pay? Consumer premiums: Limited to 2%-9.5% of family income;

sliding scale

The premium amount can be adjusted during the year if income or family size changes and is reported to the state Marketplace

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Income Eligibility for New Credit Determined Using 2013 Federal Poverty Level (FPL)

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Household size

100% 133% 200% 250% 400%

1 $11,490 $15,282 $22,980 $28,725 $45,960

2 $15,510 $20,628 $31,020 $38,775 $62,040

3 $19,530 $25,975 $39,060 $48,825 $78,120

4 $23,550 $31,322 $47,100 $58,875 $94,200

5 $27,570 $36,668 $55,140 $68,925 $110,280

The FPL is calculated every year by HHS

Some individuals between 100% - 133% qualify for expanded Medicaid, if their state expanded coverage

Health Insurance Premium Credit Example Monica is a single parent earning $30,000 working for a

small business that does not provide health insurance. She is raising two children over age 18.

Monica enrolls with her state marketplace and chooses a mid-range “benchmark” insurance plan. The total annual premium = $6,850. No way she can pay that!

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How Monica Gets Coverage

But Monica’s expected contribution is no more than 4.2% of her income = $1,250 – about $104 per month.

Her annual tax credit would be $5,600, paid by IRS to the insurance company ($6,850 “benchmark” premium minus Monica’s $1,250 contribution

= $5,600 tax credit).

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Helping Families Get Their Premium Credit

Assist with Applications and Enrollment Oct. 1, 2013 - Mar. 31, 2014 Recruit staff and volunteers to be trained assistors, or Provide computer access to self-enroll, or Refer clients to Marketplace and Navigators/Assistor

agencies that assist clients

In 2014, ask your clients if they enrolled If no: before Apr 2014, refer them to Marketplace If yes: do a “checkup”; advise them to immediately

report any 2014 income & family changes to Marketplace

To learn more about the Marketplace visit: www.HealthCare.gov

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Medicaid Expansion√

The ACA expands Medicaid to 133% of poverty for adults About $15,000 for an individual or $31,000 for a family

of four

Most newly eligible are adults without dependent children and parents of children with state coverage

The Supreme Court decision gave states the choice whether to expand Medicaid or maintain current eligibility restrictions that leave many adults without coverage

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Some States Have Refused to Expand Medicaid √ In states that don’t expand, those with incomes under

100% of poverty who otherwise would have qualified for Medicaid will not be eligible for premium tax credits.

Exception: legal immigrants who haven’t had legal status for at least 5 years wouldn’t qualify for Medicaid even in states that expand. Those legal immigrants with income less than 100% of

poverty will qualify for premium tax credits

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Center on Budget and Policy Priorities

cbpp.org57

About Half the States Are Likely to Expand Medicaid in 2014

As of May 24, 2013

√

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Maximizing Refunds

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Split Refunds Tax filers can use direct-deposit to split their

refund into checking, savings, an IRA or purchase a savings bond.

File Form 8888 with the tax return

Outreach info and materials: www.d2dfund.org/tax_time_savings

Tax Refunds and Wealth-Building Opportunities

Promote the EIC and CTC with asset development programs: Bank Accounts Individual Development Accounts (IDAs) Car Ownership Programs Homeownership Programs Investment Clubs

Connect taxpayers to financial resources: Financial Education Classes Credit Reports and Credit Repair America Saves

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How do the Tax Credits Affect Other Public

Benefits?

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Do the EIC & CTC Count as Income for Other Public Benefits? Current rules enacted by Congress in Dec.

2010:

No federal tax refund counts as income for any program with federal funding

Refunds that are saved do not count against resource limits for 12 months after the refund is received

Who is at Risk of Missing Out on Refundable

Tax Benefits?

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Who Might Miss Out on the EIC and CTC?

Workers not required to file returns

In 2013: $20,000 for a married couple $12,750 for head of household $10,000 for a single filer

Workers just entering labor force

New parents Foster, adoptive

Divorced or separated custodial parents

Workers newly eligible due to a reduction in income or loss of employment

Tax Credits: Making a Difference

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$13,391

$6,695

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Reaching Out to Promote the Credits

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Everyone Can Help Promote the Tax Credits

You do NOT have to be a tax expert to help families claim their credits.

Incorporate outreach activities into your routine work – and encourage your partners to do the same.

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Promoting the Credits

Alert families about the EIC and CTC and provide the basic information they need:

Eligibility information How to find tax forms VITA site locations Help getting an SSN or ITIN

Inform families

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Promoting the Credits

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 Utility companies Media IRS

Build partnerships to connect with eligible workers:

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Tax Credit Outreach Coalitions Promote the EIC and CTC and provide free tax preparation

services.

Represent a partnership of a variety of organizations — social service agencies, financial institutions, government agencies, faith-based organizations and the IRS.

Join our coalition: Add name, contact info and website here.

Outreach Partnership in Action: The Denver Asset Building Coalition √

Denver Asset Building Coalition Purpose

Provide free tax preparation and connect workers to financial education and asset building opportunities to help them become economically stable.

Background Established in 2003 as a nonprofit Offerings:

VITA – 13 sites Employer Partnership Program Financial workshops

Outreach Approach Diverse Partnerships: government, businesses, social service agencies,

housing authorities, financial & educational institutions and nonprofits.

Expanding Services: multi-lingual tax preparation, outreach in Spanish communities and Virtual VITA.

Media: Printed materials, radio interviews, press releases and newspaper articles.

2013 Outreach Results 13 sites filed 2,700 tax returns generating more than $3.5 million in federal

refunds including $1.5 million in EIC refunds. 71

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Building a Tax Credit Outreach Campaign

Spectrum of Outreach Approaches Distribute tax credit info and direct workers to free tax filing sites

Conduct outreach events and create opportunities to file returns

Get in position to enrich and sustain outreach efforts in the future

Engage others in reaching out through their own networks

Expand and improve free tax filing sites

The Center on Budget and Policy Priorities’ National Tax Credit Outreach Campaign Can:

Provide Tax Credit Outreach Kits

Arrange a conference call or webinar to help organizations develop an outreach strategy

Connect you to online resources:

EIC/CTC flyers in 21 languages

EIC Estimator

Searchable Outreach Strategies Database

Sample Press Release

EIC & CTC FAQs and much more!

www.eitcoutreach.org73

What’s Next?

How will you contribute to tax credit outreach

efforts?

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Staying Connected After your community training, it is important to follow-

up with participants so you can establish a collaborative tax credit outreach effort

Follow-up Opportunities: Emails In-person meetings Conference calls Webinars

Follow-up Purpose: Keep people engaged Learn what participants do as a result of attending your community

training Identify opportunities to collaborate and collectively explore how to

reach EIC and CTC eligible workers75