February 1, 2013

Earned Income Tax Credit (EITC)

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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

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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

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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

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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!!!!!!!

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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!!!

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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

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 • http://www.irs.gov/Individuals/Preview-of-2012-EITC-

Income-Limits,-Maximum-Credit--Amounts-and-Tax-Law-Updates

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EITC Details

• Information on requirements for qualifying child

– http://www.irs.gov/Individuals/EITC,-Earned-Income-Tax-

Credit,-Questions-and-Answers – Child with a permanent and total disability does NOT have

to meet age requirement

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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)

http://www.irs.gov/Individuals/Preview-of-2012-EITC-Income-Limits,-Maximum-Credit--Amounts-and-Tax-Law-Updates

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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 $3,200

7. Must have Earned Income IRS-596: http://www.irs.gov/pub/irs-pdf/p596.pdf

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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 • www.irs.gov/Individuals/Disability-and-Earned-Income-Tax-Credit

– 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

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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

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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

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State EITC

• Do not overlook state EITCs

• 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: – http://www.irs.gov/Individuals/States-and-Local-

Governments-with-Earned-Income-Tax-Credit 15

EITC & Benefits: New Legislation

• American Taypayer Relief Act of 2012, signed into law 1/3/13 (section 103 (d) and (e)(2) – http://www.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-

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

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: http://www.irs.gov/pub/irs-

pdf/p907.pdf

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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: http://www.irs.gov/pub/irs-pdf/p3966.pdf

– IRS website summarizing tax information for people with disabilities: http://www.irs.gov/Individuals/More-Information-for-People-with-Disabilities

– IRS publication summarizing tax highlights for people with disabilities: http://www.irs.gov/pub/irs-pdf/p907.pdf

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Help with Filing

• Getting help with filing: – Volunteer Income Tax Assistance (VITA) and Tax Counseling for

the Elderly (TCE) • http://irs.treasury.gov/freetaxprep/ • VITA: 1-800-906-9887 • TCE: 1-888-227-7669

– Local organizations may be providing free assistance too, network!

– Choosing a Paid Preparer • http://www.eitc.irs.gov/ptoolkit/factsheets/chooseapaidpreparer/

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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 • http://apps.irs.gov/app/eitc2012/SetLanguage.do?lang=en

– Call IRS:

• http://www.irs.gov/uac/Telephone-Assistance

– Filing online and tax forms: • http://www.irs.gov/efile/article/0,,id=118986,00.html

– IRS Tax Payer Assistance Centers

• http://www.irs.gov/localcontacts/index.html

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Help Spread the Word

1. Hang up EITC fact sheets or flyers in your office (lobby, etc.) • http://www.eitc.irs.gov/ptoolkit/factsheets/ • http://www.eitc.irs.gov/ptoolkit/tips/

2. 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 • http://www.eitc.irs.gov/ptoolkit/socialmedia/

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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!

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