Federal Income Tax Credits

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Tax Credits

$ for $ reduction in amount of income tax owed

Unlike deductions where the benefit depends on your marginal tax bracket

SOME credits are refundable you can get $ back even if you do not

owe taxes must file a tax return to collect

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Objectives (be able to):

1. explain EITC & child & dependent care credit2. determine eligibility for EITC & Child Credit 3. know approximate dollar amounts of EITC

and maximum income amounts 4. estimate EITC payments using the online

calculator or print table5. explain the impact of EITC on eligibility for

food stamps, Medicaid & public housing6. list main criteria for eligible children7. describe the Advance EITC and how to apply8. know if full-time college students are eligible

Earned Income Tax Credit (EITC)

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Earned Income Tax Credit for Low Income Workers

Credit $ for $ reduction in tax

Refundable credit allows refund > amount of tax due may qualify even if you don’t owe taxes must file a tax return to collect EITC

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EITC

Amount of credit based on income (AGI) & family size

Must file tax return to claim the credit Even if you don’t owe taxes

Can arrange Advance payments don’t need to wait until end of tax year receive monthly payments instead

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EITC Eligibility

Must be employed Must have valid SS# Lots of rules apply 2007 maximum income

$39,783 if married filing jointly (> 1 kid) $14,590 if married filing jointly (no kids) $12,590 if single, no eligible children

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Do you Qualify? http://www.irs.gov/individuals/article/0,,i

d=96406,00.html Outreach Kit

http://www.cbpp.org/eic2008/EITC Estimator

http://www.cbpp.org/eic2007/calculator/eitcchoose.htm

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EITC Summary

Income tax credit for low income workers

Advance EITC Don’t wait until end of year to collect

Underutilized- lots of eligible workers fail to claim the credit

Some states (Not UT) offer EITC

Child & Dependent Care Credit

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Child & Dependent Care Credit

Parents can claim up to $3,000 in dependent care expenses per child (or adult) up to $6,000 for two or more children Unlike EITC, child care credit is NOT

refundable families earning too little to pay federal income tax

cannot use this credit

The EIC and CTC do not affect a family’s eligibility for child care credit.

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Amount of Child Care Credit

depends on the number of children or dependents in care, a family’s income, and the amount the family paid for care during the

year.

It can be as much as $1,050 for families with one child or dependent

in care $2,100 for families with more than one child or

dependent in care.

Post-Secondary Education Tax Credits

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Hope Credit & Lifetime Learning Credit

Not refundable (must owe taxes to benefit)

Pay for qualified education expenses for self, spouse, or dependents Tuition and fees Colleges and vocational schools

2007 AGI <$57,000 ($112,000 if married)

Claim one or the other, not both

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Hope Credit

Student in 1st or 2nd year of college Pursuing undergraduate degree

100% of the first $1,100 eligible expenses

+50% of the next $1,100 Maximum credit is $1,650

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Lifetime Learning Credit

any point in post-secondary education don’t need to be seeking degree

40% of the first $10,000 of eligible expenses

maximum credit is $2,000/ household, credit is per household, not per student

IRS Form 8863 for LLC or Hope

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More Tax Credit Info

http://www.cbpp.org/eic2008/additional-credits.htm Child & dependent care credit Saver’s Credit Roth IRAs Education Tax Credits IRS Split refund policy