Millions Eligible to Claim Earned Income Tax Credit in 2009, Get Big Refund
A YourMoneyCounts® Exclusive by Lynnette Khalfani-Cox, The Money Coach
Would you like to receive a no-strings-attached check for hundreds or even thousands of dollars from the federal government this tax season? If you can answer "Yes" to 10 short questions, you may qualify for a good-sized tax refund, compliments of Uncle Sam.
The windfall in question is the Earned Income Tax Credit, also known as the EITC.
The EITC is a refundable tax credit – ranging from $438 to $4,824 – designed to supplement wages for low-to-moderate income workers. But don’t be fooled by the term "low-income," because it doesn’t just apply to blue-collar employees or those earning lower salaries. Tens of millions of individuals and families previously classified as "middle class" – including many white-collar workers – are now considered "low income" because they lost a job, took a pay cut, or worked fewer hours last year.
Since the EITC is a tax credit – not a deduction – if you claim the EITC you can slash the taxes you owe to zero, and even get lots of money back from the government. The IRS reports that the average EITC refund is about $2,000. The exact refund you receive depends on your income, marital status and family size. To get a refund from the EITC you must file a tax refund, even if you don’t owe any taxes.
In 2008, 24 million taxpayers used the EITC program to claim more than $48 billion. Unfortunately, 25% of taxpayers who are eligible for the earned income credit fail to claim it, according to the IRS. Some people miss out on the EITC because the rules can be complicated. Others simply aren’t aware that they qualify for this hefty benefit.
You don’t have to remain in the dark, however, about the earned income credit. Read on to learn more about it. You can also get help with the EITC by using the new EITC Assistant, available in English and Spanish on the IRS website: http://www.irs.gov/eitc.
Do You Qualify For the Earned Income Tax Credit?
The earned income tax credit has been touted as one of the best anti-poverty, pro-family tax measures ever created because it targets working individuals and helps them keep more of their hard-earned money. There are many rules governing eligibility for the EITC. But if you can answer "Yes" to each of the following 10 questions, chances are you qualify for the EITC and may have a big check coming your way:
1. Were you a United States citizen or resident alien for all of 2008?
2. Have you lived in the U.S. for more than half a year (i.e. six months and a day)?
(Note: living in U.S. territories – such as Puerto Rico, Guam, the U.S. Virgin islands or American Samoa -- does not count).
3. Do you (and your spouse, if filing a joint return) have a valid social security number?
4. Did you have earned income from a job last year?
(Note: earned income includes wages, salaries, tips, taxable employee pay, non-taxable combat pay, net earnings from self-employment, clergy income, strike benefits, disability benefits, and gross income received as a statutory employee)
5. Based on your family size, was your earned income and adjusted gross income last year less than IRS limits established for the EITC?
(Note: for singles, the income limits set by the IRS are capped at $38,646; for married tax filers, the maximum income limit is $41,646. See the table below for more details).
| No Children | 1 Child | 2 or More Children |
|
| Single Income Cap | $12,880 | $33,995 | $38,646 |
| Married Income Cap | $15,880 | $36,995 | $41,646 |
| Max Credit-Single | $438 | $2,917 | $4,824 |
| Max Credit-Married | $438 | $2,917 | $4,824 |
6. Is your tax filing status any of the following: single, head of household, qualifying widow(er), or married filing jointly?
(Note: married filing separately is the one filing status that disqualifies you for the EITC).
7. Are you at least 25 years old, but under the age 65?
(Note: If you are under 25, or are age 65 and older, are you raising a child, grandchild or other descendant that you can claim as a ‘qualifying child?’)
8. Did you earn investment income of $2,950 or less for the most recent tax year?
(Note: Investment income includes ordinary dividends, capital gain distributions, taxable interest, and tax-exempt interest).
9. Can you confirm that neither you nor your spouse is the ‘qualifying child’ of another person?
(Note: See the IRS definition of a ‘qualifying child’ below).
10. Can you confirm that neither you nor your spouse is filing Form 255, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion?
(Note: These forms allow you to exclude income earned in a foreign country from your gross income, or to deduct or exclude a foreign housing amount).
If you answered "Yes" to every question above, you are very likely to qualify for the EITC! To get the fastest refund, use IRS e-file (http://www.irs.gov/efile) and direct deposit. Filing a Federal return electronically is safe, easy and free, plus you’ll get your refund wired into your checking or savings account in 10 to 14 days.
Can You Claim Someone as a ‘Qualifying Child’ On Your Taxes?
Although you can receive an earned income tax credit even if you have no children, the largest EITC refunds go to those with at least one ‘qualifying child’ on their returns.
If you want to claim someone on your taxes as a ‘qualifying child’ in order to get the EITC, you must meet federal guidelines. The IRS establishes three tests to determine whether your child is a so-called ‘qualifying child.’ The three tests examine relationship, age and residency.
According to the IRS, to be considered your ‘qualifying child’ for the EITC, a child must be your:
- son, daughter, stepchild, adopted child, eligible foster child, or a descendant of any of them, such as your grandchild; or
- brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (such as your nephew or niece)
Relationship, Age and Residency
What this means, thankfully, is that the EITC doesn’t just help parents. Grandparents, aunts, uncles, and even siblings can get this refundable tax credit, as long as they can claim a ‘qualifying child’ that they lived with for more than half of the year.
Regarding the IRS’s age requirements, you can claim someone as a ‘qualifying child’ for the EITC provided the individual was 18 years of age or younger at the end of the tax year. You can also claim young adults up to and including age 23 if they were a full-time student for at least one semester. Lastly, you can claim someone of any age as a ‘qualifying child’ if that individual is totally disabled.
Under the IRS’s residency test, the ‘qualifying child’ must have lived with you in the U.S. for at least six months and a day in 2008.
Get Help Preparing Your Income Taxes and Claiming the Earned Income Credit
Now that you know whether or not you’re likely to qualify for the earned income tax credit, it’s time to get busy filling out those tax returns. Mercifully, you don’t have to pore over thousands of pages of the IRS tax code, nor do you have to pay an expensive accountant in order to get your taxes done by the April 15 deadline.
If you earned roughly $42,000 or less, or if you can’t prepare you own taxes, you can get help in filling out your tax return and claiming the EITC from a Volunteer Income Tax Assistance (VITA) site in your area. The VITA Program operates nationwide, and is staffed by individuals who are trained in completing basic tax returns. You can find a local VITA site by calling 800-829-1040. Most of the country’s 12,000-plus VITA sites are run out of community agencies, neighborhood centers, libraries and schools.
Here is what the IRS recommends you bring to a VITA site to have your tax returns prepared:
- Proof of identification
- Social Security Cards for you, your spouse and dependents and/or a Social Security Number verification letter issued by the Social Security Administration
- Birth dates for you, your spouse and dependents on the tax return
- Current year’s tax package if you received one
- Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers
- Interest and dividend statements from banks (Forms 1099)
- A copy of last year’s federal and state returns if available
- Bank routing numbers and account numbers for Direct Deposit
- Total paid for daycare provider and the daycare provider's tax identifying number (the provider's Social Security Number or the provider’s business Employer Identification Number)
Need Extra Money Now? Claim the Advance Earned Income Tax Credit Today
One special feature of the earned income tax credit is that you can get it sooner, rather than later. If you expect to qualify in 2009 for the earned income credit and you have at least one dependent child, you can request part of that credit right now under the "Advance EITC Program."
Here’s how it works. You fill out a Form W-5, which is called the Earned Income Credit Advance Payment Certificate. (Get a Form W-5 from your employer, or download a copy from: http://www.irs.gov/pub/irs-pdf/fw5.pdf.) Soon after you complete the W-5, you will begin receiving advance EITC payments through your employer. The EITC payments are added to your regularly scheduled paychecks. In 2009, the maximum advance EITC payment amount you can receive through your employer is $1,826. Once tax season rolls around next year, you can still claim the earned income tax credit and receive the balance of any money that may be due you, above and beyond the $1,826 that was added to your pay over the course of this tax year.
To be eligible for the advance earned income credit payment, all four of the following must be true:
- You (and your spouse, if filing a joint return) have a valid Social Security Number
- You expect to have at least one qualifying child, and to be able to claim the earned income credit using that child
- You expect that your 2009 earned income and adjusted gross income will be less than $35,463 (or $38,583 if married filing jointly), with one qualifying child. Or you expect to have two or more qualifying children, and you expect your 2009 income will be less than $40,295 (or $43,415 if married filing jointly).
- You expect to be able to claim the EIC for 2009
The W-5 form is very short, easy to fill out, and will likely take you just one minute to complete.
On the W-5, you simply print or type your full name and social security number. Then you answer "Yes" or "No" to two questions, and check a box indicating your tax filing status (i.e. single, head of household, qualifying widow(er), or married filing jointly). At the bottom of the form, you sign and date the W-5, and that’s it.
3 Things You Probably Don’t Know About the Earned Income Tax Credit
If you’ve just found out about the earned income tax credit, you may feel like you’ve hit a financial jackpot – especially if you are able to use this tax credit to eliminate your tax bill and get back thousands of dollars from the government. But what you may not know is that you could be entitled to an even larger financial bonanza, and a host of other benefits, all thanks to the EITC.
You Could Be Owed Three Extra Years’ Worth of Refunds
Under the law, if you were eligible to claim the earned income tax credit in the past, but didn’t, you can still get that money. You can file anytime during the year to claim an EITC refund for up to three previous tax years. For some taxpayers, this provision could spell many more thousands of dollars – money that will no doubt come in handy during these trying economic times.
Your Other Benefits Won’t Be Reduced
If you are receiving public assistance or welfare benefits, you’ll be pleased to know that claiming the earned income credit has no effect on certain forms of aid. For example, getting a refund via the EITC does not impact your eligibility for food stamps, low-income housing, Medicaid and Supplemental Security Income (SSI). EITC payments are not counted as income for these programs.
Your State, County or City May Offer Additional Earned Income Tax Credits
In addition to the federal earned income tax credit, 22 states and a handful of local governments offer their own earned income credit programs. These state and local earned income credits are sometimes called "Piggyback Credits" because they are tied to the amount of your federal earned income tax credit. State and local tax credits currently range from 3.5% to as much as 43% of your federal EITC. As of February 2009, Washington D.C., New York City, Montgomery County, Maryland and the following states offered an earned income credit:
- Delaware
- Illinois
- Indiana
- Iowa
- Kansas
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Nebraska
- New Jersey
- New Mexico
- New York
- North Carolina
- Oklahoma
- Oregon
- Rhode Island
- Vermont
- Virginia
- Wisconsin
If you live in any of these areas and you qualify for the federal EITC, be sure to also file a similar credit on your state or local income tax return. For further information about this topic, read IRS Publication 596, Earned Income Credit.
While it goes without saying, be sure to use any refunds wisely! Some smart ways to use the money include: paying off debt, building an emergency fund, and saving cash for future goals like buying a home or paying for retirement.
[Please note that this information is not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. This information has been prepared for general guidance only, and does not constitute the provision of legal or tax advice or consulting of any kind. You should consult your own tax advisor because the facts of your particular situation may impact whether, or how, the items described herein apply.]
