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Archive for the ‘Earned Income Tax Credit’ Category

If you haven’t filed a tax return in years, the Internal Revenue Service wants you – and not in the way that you think.

The IRS is actually looking to return $1.3 billion in unclaimed refunds to roughly 1.4 million people who never filed a federal income tax return for 2006. If you happen to be among those non-filers, you must act fast because to collect any money you are owed, a tax return for 2006 must be filed by April 15, 2010. Under the law, you only have 3 years to claim a tax refund; after three years, any money that would have been due to you becomes the property of the U.S. Treasury.

Lots of people don’t file tax returns for a host of reasons. Some people earned too little money, and weren’t required to file. They may nevertheless be entitled to a refund, based on taxes paid or tax credits for which they were eligible. At other times, however, people don’t file a return simply because they owe money – or they’re scared that they may owe money. Even if you owe the IRS, chances are you can work out a payment plan to clear up past-due payments. If you didn’t owe money, and didn’t file a 2006 tax return, you don’t have to worry about penalties because penalties are only imposed on individuals who had taxes due.

According to IRS statistics, the typical unclaimed refund for 2006 is $604.

The states with the highest numbers of non-filers who have a 2006 tax refund waiting for them are: California (159,800 individuals); Texas (109,600 individuals); Florida (101,700 individuals); and New York (76,700 individuals).

What’s more, many people who didn’t file their taxes a few years ago may stand to gain even bigger refunds if they made less than approximately $38,000 in 2006 and claim the Earned Income Tax Credit.

For more information about getting an unclaimed refund, check out more on this IRS video in English or Spanish.

By Lynnette Khalfani-Cox, The Money Coach

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 even 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:

• ID: Proof of identification
• SS cards: Social Security Cards for you, your spouse and dependents and/or a Social Security Number verification letter issued by the Social Security Administration
• DOB: Birth dates for you, your spouse and dependents on the tax return
• Tax forms: Current year’s tax package if you received one
• W2: Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers
• 1099: Interest and dividend statements from banks (Forms 1099)
• Last return: A copy of last year’s federal and state returns if available
• Bank info: Bank routing numbers and account numbers for Direct Deposit
• Daycare info: 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)

By Lynnette Khalfani-Cox, The Money Coach

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 tax 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.  If you are self-employed, you cannot qualify for the advance payment.

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.

By Lynnette Khalfani-Cox, The Money Coach

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.

By Lynnette Khalfani-Cox, The Money Coach

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.