Earned Income Tax Credit (EITC) February 1, 2013

Transcription

1 Earned Income Tax Credit (EITC) February 1,

2 Agenda What is Your Role with the EITC? What is the EITC? Who can get the EITC? How does EITC impact financial needs-based benefits? Tools and Resources 2

3 What is a Your Role with the EITC? 1. EITC is a work incentive - inform beneficiaries about it! 2. Help beneficiaries assess potential eligibility WARNING: Work Incentives Counselors are not trained to be accountants! Provide only general information. 3. Help beneficiaries understand how receipt of EITC does or does not impact financial needs-based benefits 3

4 What is a Your Role with the EITC? 4. Be prepared to refer beneficiaries to volunteer or paid tax professionals for assistance in requesting the EITC Know the local resources for free tax assistance 5. Remind beneficiaries to report receipt of the EITC to relevant agencies 4

5 What is the Earned Income Tax Credit (EITC)? Created in 1975, EITC intended to help offset the impact of Social Security taxes paid by workers A tax credit: a dollar for dollar reduction in tax owed When completing a tax return, if eligible, claim EITC to reduce the amount of tax owed Can result in a refund check!!!!!!! 5

6 Example of EITC in Action Jane is an SSI recipient (single, no dependents) In 2012 she earned $650/month ($7,800/year) $80/month was taken out of paycheck for federal income taxes ($960/year) Jane completed her tax return and determined her tax liability for 2012 was $780 $ 780 Tax Liability for 2012 (-) $ 475 EITC (actual amount based on EIC Table) (=)$ 305 Tax Liability AFTER EITC (-) $ 960 Tax Paid During the Year (=) $655 Refund!!! 6

7 Why Talk about EITC? Largest and longest running anti-poverty program Annually lifts 6.6 million people out of poverty, half are children 26.5 million workers in 2012 received nearly $60.7 billion dollars in EITC credits! 4 out of 5 eligible people claimed EITC goal is 5 out of 5 Workers move in and out of eligibility approximately 1/3 of eligible EITC population turns over each year People with disabilities are a target group 7

8 EITC Details The EITC reduces the amount of tax owed through a credit (dollar for dollar reduction) Maximum credit amounts for 2012 tax year: $5,891 with three or more qualifying children $5,236 with two qualifying children $3,169 with one qualifying child $475 with no qualifying children Income-Limits,-Maximum-Credit--Amounts-and-Tax- Law-Updates 8

9 EITC Details Information on requirements for qualifying child Credit,-Questions-and-Answers Child with a permanent and total disability does NOT have to meet age requirement 9

10 Who Can Get the EITC? 1. In addition to filing a tax return, earned income and Adjusted Gross Income must be below: No qualifying children: $13,980 ($19,190 for married filing jointly) 1 qualifying child: $36,920 ($42,130 for married filing jointly) 2 qualifying children: $41,952 ($47,162 for married filing jointly) 3 qualifying children: $45,060 ($50,270 for married filing jointly) Maximum-Credit--Amounts-and-Tax-Law-Updates 10

11 Who Can Get the EITC? 2. Have a valid Social Security Number 3. Filing Status can NOT be Married Filing Separately 4. Be a U.S. citizen or resident alien all year 5. Cannot file form 2555 or 2555EZ (Foreign Earned Income) 6. Investment income less than $3, Must have Earned Income IRS-596: 11

12 What is Earned Income? All taxable income and wages from work, including: Wages, salaries, tips and other taxable employee pay; Union strike benefits; Long-term disability benefits received prior to minimum retirement age Net earnings from self-employment if: Individual owns and operates a business, or Individual is a minister or member of a religious order Gross income received as a statutory employee 12

13 What is NOT Earned Income? Examples include: Pay received for work while an inmate in a penal institution Pensions, annuities, and retirement income Interest and dividends Social Security and Railroad Retirement benefits Unemployment benefits Alimony and child support Welfare benefits Workers Compensation Veterans benefits 13

14 Who Can Get the EITC? If individual has a qualifying child: Child must meet relationship, age, residency, and joint return test Child cannot be used by more than one person to claim EITC Filer cannot be a qualifying child of another person If individual has NO qualifying child: Must be at least age 25 but under age 65 Cannot be the dependent of another person Cannot be a qualifying child of another person Must have lived in the US more than half the year 14

15 Do not overlook state EITCs State EITC 24 states (counting the District of Columbia) offer their residents an additional EITC. Montgomery County, Maryland and New York City also have an EITC Some cities or local governments may also offer an EITC For a list of states that offer a state EIC, go to: Governments-with-Earned-Income-Tax-Credit 15

16 EITC & Benefits: New Legislation American Taypayer Relief Act of 2012, signed into law 1/3/13 (section 103 (d) and (e)(2) 112hr8enr.pdf Makes permanently the exclusion of Federal tax refunds (including EITC) for all Federally funded benefits (fully or partially funded) such as SSI, HUD, SNAP Refund excluded from income Refund excluded from counting as a resource for 12 months Policies are still in development at various agencies 16

17 COMMON Non-EITC Tax Question Are my Social Security benefits taxable? SSI: Not taxable SSDI: Taxable if all other income plus half of benefits exceed annual limits IRS Publication 907: 17

18 COMMON Non-EITC Tax Question Are there special tax deductions available to me as a person with a disability? Brochure summarizing tax credits and deductions for people with disabilities: IRS website summarizing tax information for people with disabilities: Disabilities IRS publication summarizing tax highlights for people with disabilities: 18

19 Getting help with filing: Help with Filing Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) VITA: TCE: Local organizations may be providing free assistance too, network! Choosing a Paid Preparer 19

20 Help with Filing Tools for filing independently: EITC Assistant can help determine: If an individual is eligible for EITC If child(ren) meet the tests for a qualifying child, and Estimate the amount of the credit Call IRS: Filing online and tax forms: IRS Tax Payer Assistance Centers 20

21 Help Spread the Word 1. Hang up EITC fact sheets or flyers in your office (lobby, etc.) Mail EITC information out to customers who are working or worked last year 3. Incorporate EITC into your regular advisement: Talk about EITC during I&R and individualized advisement, include it in BSAs, include it on WIPs 4. Add EITC information to your website and through social networking 21

22 Final Thoughts EITC is a powerful work incentive We play a critical role in: Informing beneficiaries about what it is, Advising about interaction of EITC and public benefits, and Referring to appropriate tax experts to implement. Tax season is here, now is the time to begin supporting beneficiaries with this work incentive! 22