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Archive for the ‘Earned Income Tax Credit’ Category

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.

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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.

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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.

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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 huge financial windfall, compliments of Uncle Sam.

The financial windfall is the Earned Income Tax Credit. The EITC 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).

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, congratulations! 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.

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