1 Money Talks! Have You Heard? Promote the Earned Income Credit and Child Tax Credit Presentation by: Organization: Phone:

2 Did You Know…?  Represents up to a 40% pay increase for some workers  Can turn a $6 per hour job into an $8 per hour job  In 2005, raised 4.1 million individuals — including 2.2 million children — above the poverty line  Is the largest public benefit program providing support to working families The Earned Income Credit (EIC)

3 Why is Outreach Needed?  As many as 20-25% of eligible workers don't claim the EIC  Up to $8 billion in EIC refunds went unclaimed in 2008 Efforts are needed to ensure eligible workers know how to claim the EIC and other tax credits.

4 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

5 Credit Amount Note: Married couples with income in the phaseout range qualify for a higher credit than single parents — shown by dashed lines. The Federal EIC in Tax Year 2008

6 The EIC: Making a Difference Helping Working Families Out of Poverty, 2008 Full-time Minimum Wage Job* (less withholding) $11,451 Full-time Minimum Wage Job* (less withholding) $11,451 Food Stamps $1,884 Food Stamps $1,884 EITC $2,917 Without EITCWith EITC Annual Income Estimated Poverty Line for Family of Two (including one child) $14, % 91%

7 How do Workers Use the Credits?  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 The credits help workers keep working and care for themselves and their children.

8 How much can workers earn and qualify for the EIC?  Income limits for married workers are $3,000 higher than these amounts.  Investment income cannot exceed $2,950. Number of children: Income less than: EIC up to: 2 or more children $38,646$4,824 1 child$33,995$2,917 No children$12,880$438 For tax year 2008:

9 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 taxable income, such as:  Unemployment  Alimony  Interest on bank accounts

10 EIC Benefits for Tax Year 2008 at Various Income Levels 2008 household income EIC for single workers not raising a child EIC for single workers raising one child EIC for single workers raising two or more children $ 5,000$383$1,700$2,000 $ 8,000$373$2,720$3,200 $10,000$220$2,917$4,000 $12,000$67$2,917$4,800 $14,000$0$2,917$4,824 $16,000$0$2,876$4,769 $20,000$0$2,236$3,927 Note: This is not a tax table. Do not use this table to complete income tax returns.

11 How Much Can Workers Earn and Qualify for the CTC? Workers who earned more than $12,050 in 2008 can get a CTC refund. CTC income limits are higher than for EIC: $110,000 for married couples $75,000 for single or head of household $55,000 married filing separately The CTC is worth up to $1,000 for each qualifying child.

12 The EIC and CTC are “Refundable” Tax Credits What does this mean?

13 Most Tax Credits are “Non-refundable”  They simply reduce or eliminate the income tax you owe.  Suppose you owe $400 in income taxes and qualify for a non-refundable credit worth $1,000. The credit will eliminate the amount you owe — but you can’t get the remaining $600.

14 How is a “Refundable” Credit Worth More?  Suppose you owe $400 in income taxes and qualify for a refundable credit worth $1,000. The credit will eliminate the amount you owe — and the IRS will send you a check for the remaining $600.

15 How do the EIC and CTC Work Together?

16 Maxine  She earns $18,000 a year.  $300 in income tax has been withheld.  Her total tax refund is $3,556! Maxine is a single mom raising a 14-year old child. How much of Maxine’s refund comes from the EIC? How much from the CTC?

17 Maxine’s EIC  Maxine is eligible for an EIC refund worth $2,556.  The EIC table provides this amount.  The remaining $1,000 is Maxine’s CTC refund.

18 How do We Get the CTC Amount?√  First used to reduce or eliminate any income tax owed  Workers may be able to get all or part of any remaining CTC as an additional refund (the Additional Child Tax Credit) For the additional CTC, a family can get whichever is LESS:  The amount of the CTC that remains after income tax is eliminated, OR  15% of the family’s taxable earned income over $12,050 Calculating the CTC:

19 How Does That Work for Maxine? √ A.The CTC is first used to eliminate the $300 in taxes she owes. (The IRS will pay her back.) She has $700 of the CTC remaining.  $1,000 - $300 = $700 B. The amount of Maxine’s earnings over $12,050 is $5,950. Fifteen percent of this amount is $892.  $18,000 - $12,050 = $5,950 and $5,950 x 15% = $892 The Additional CTC is the lesser of A and B. In this case, Maxine’s Additional CTC is $700.

20 Maxine’s Tax Refund √ EIC $ 2,556 CTC ($1,000) o Return of income taxes withheld $ 300 o Additional CTC $ 700 Total Tax Benefit $ 3,556

21 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: Between 20 and 35% of expenses – depends on income  28 states also have a credit – In 12 states the credit is refundable

22 EIC and CTC — What are the Differences?

23 Different Credits — Different Rules  Who qualifies?  Definition of a “qualifying child”  Temporary absence of a worker or child  Resolving duplicate claims for a child  Eligibility for specific groups  The tax credits and other public benefits  How do you claim the tax credits?

24 Who Qualifies for the EIC and CTC?  Full or part-time workers, including self-employed workers  Workers who also receive public benefits  Single or married workers  Workers raising a “qualifying child” living in their home Some very low-income workers without a “qualifying child” may be able to claim the EIC  Immigrants who are legally authorized to work CTC ONLY:  Immigrant workers with Individual Taxpayer Identification Numbers (ITINs)  Some non-custodial parents

25 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. EICCTC Relationship Son, daughter, grandchild, stepchild, adopted child, brother, sister, stepbrother, stepsister (or their descendents) 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

26 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

27 What if Two Workers Claim the Same Child? √ 1. An eligible parent always has priority to claim the credits over another eligible worker. 2. Unmarried parents who are each eligible can choose which parent claims a child. 3. Claims by two eligible relatives are decided by the IRS based on which relative lived with the child for a longer time during the year.  If each lived with the child for the same amount of time, the relative with the highest adjusted gross income receives the credits. Tiebreaker rules for resolving duplicate claims:

28 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

29 Are There Special Rules for Native Americans? √  Eligibility requirements are the same as for other families and individuals.  Generally, Native Americans pay federal income tax on earnings.  However, income which is exempt from federal income tax because of a specific treaty, agreement or Act of Congress doesn’t count as earned income for the EIC or the CTC.

30 What About Members of the Military? √  Eligibility requirements are the same as for other workers.  Time spent away from home while serving in the military is considered a temporary absence.  Combat pay is considered non-taxable earned income: Pay to members of the military in a combat zone is counted to determine eligibility for CTC. Members of the military may choose to count combat pay in determining eligibility for the EIC, if it is an advantage.

31 What about Non-custodial Parents? √  A child must live with a worker for more than half the year for the worker to claim the EIC and CTC.  Under one exception, a non-custodial parent can claim the CTC. A non-custodial parent who is permitted to claim a child as a dependent as part of a divorce or separation agreement can claim the child for the CTC. The non-custodial parent must attach IRS Form 8832, “Release of Claim for Child or Divorced or Separated Parents,” to his or her tax return, which requires the custodial parent’s signature.

32 How do the Tax Credits Affect Other Public Benefits? Income  EIC Not income for specified federal programs including: Food stamps SSI Public housing Medicaid States determine whether EIC counts for other programs including TANF, child care, energy assistance and SCHIP  CTC Not income for any federal, state or local program financed even in part with federal funds

33 Resources  Rule for most benefit programs: EIC and CTC refunds not counted as a resource during the month the refund is received and the following month  Exceptions: Food stamps – EIC not counted as resource for 12 months SSI – EIC and CTC not counted as a resource for 9 months States can determine rule for TANF Many states do not have a resource test for Medicaid or food stamps How do the Tax Credits Affect Other Public Benefits?

34 Claiming the Credits

35 How Do You Claim the Credits?  You must file a tax return! Form 1040 or Form 104A – not 1040EZ EIC - Schedule EIC CTC - Form 8812 – for CTC  Workers not raising children can file any form for the EIC — 1040EZ is OK.  Workers who did not take advantage of the EIC in the past, but were eligible to do so, can claim it for up to three previous years.

36 Use Refunds to Build Savings  Tax filers can use direct-deposit to split a part of their refund into a bank account or an IRA Can’t be used with a paper check refund  Split-Refunds began in 2007  File Form 8888 with the tax return  Outreach info and materials:

37 Advance EIC: Get the Most Out of Every Paycheck  Workers raising children can get the Advance EIC in their paycheck 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 $130 per month extra take-home pay!  Workers can get a year-end refund too!

38 The Advance EIC is Not for Everyone  Workers should not choose if they: Hold more than one job Have a working spouse, unless both spouses take the AEIC Expect a big increase in income during the year (new job, marriage to someone who also works)  Workers could end up ineligible for the EIC and have to pay money back to the IRS  Workers cannot get if they: Do not have qualifying children Get paid day by day Do not have Social Security and Medicare taxes withheld from their pay

39 Filing for Free

40 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.

41 What are RALs? Refund Anticipation Loans  Very high-interest loans  Interest rate can be over 180 percent  Processing fee can be $80 or more  Some preparers charge a percentage of the EIC refund, driving fees even higher  No guarantee refund will equal the loan amount

42 Are There Alternatives to Commercial Tax Preparation? Volunteer Income Tax Assistance (VITA)  Provides free tax filing help for low-income workers at community sites. o Sponsored by the IRS o In many communities across the country o Volunteers are trained under IRS guidance o Taxpayers can receive refund in 7-12 days through e-filing

43 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!)

44 Reaching Out to Promote the Credits

45 Targeting Outreach  Workers not required to file returns In 2008: $17,900 for a couple $11,500 for head of household $8,950 for a single filer  Workers just entering labor force  New parents Foster, adoptive  Divorced or separated custodial parents  Workers not eligible in the past who experience a reduction in income or lose their jobs Workers at risk of missing out on the EIC and CTC include:

46 Everyone Can Help Promote the EIC and CTC  You do NOT have to be a tax expert to help families claim their credits.  You can incorporate outreach activities into your routine work – and encourage your partners to do the same.

47 Promoting the Credits  Outreach partners should alert families about the EIC and CTC and provide the basic information they need: Eligibility information Tax forms VITA site locations Help getting an SSN or ITIN Inform families

48 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:

49 Outreach Partnership: The Piton Foundation — Denver, CO √  Nonprofit and community orgs CO CAA, United Way and over 500 nonprofits Food Bank of the Rockies distributed flyers in 3,750 Thanksgiving food bags  Faith-based 3,301 churches include info in church bulletins  State and local government agencies Mailed brochures to 66 social services departments and LIHEAP recipients Included info in applications for food stamps, Medicaid, and Section 8 housing Sent payroll stuffers to 45,000 employees

50  Public officials Denver City Councilwoman distributed flyers in 2,000 Christmas baskets to low-income residents in her district.  Employers and local businesses Denver Chamber of Commerce and Mayor sent a joint letter to 2,400 businesses  Schools DPS sent EIC stuffers home with 72,557 primary school students  Media 30 sec. ads aired on local TV station; posters on buses  Other Libraries, laundromats, foster care homes, labor unions, grocery stores, workforce centers Outreach Partnership: The Piton Foundation — Denver, CO √

51 Promoting the Credits  Demonstrate how the credits can help workers meet families’ needs  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 Make special efforts to:

52 Spectrum of Outreach Approaches Building a Tax Credit Outreach Campaign 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