Federal Income Tax Credits

1. Federal Income Tax Credits

2. 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

3. Objectives (be able to): • 1. explain EITC & child & dependent care credit • 2. 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 table • 5. explain the impact of EITC on eligibility for food stamps, Medicaid & public housing • 6. list main criteria for eligible children • 7. describe the Advance EITC and how to apply • 8. know if full-time college students are eligible

4. Earned Income Tax Credit (EITC)

5. 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

6. 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

7. 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

8. Do you Qualify? • http://www.irs.gov/individuals/article/0,,id=96406,00.html • Outreach Kit • http://www.cbpp.org/eic2008/ • EITC Estimator • http://www.cbpp.org/eic2007/calculator/eitcchoose.htm

9. 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

10. Child & Dependent Care Credit

11. 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.

12. 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.

13. Post-Secondary Education Tax Credits

14. 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

15. 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

16. 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

17. 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