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Find Out What The Earned Income Credit (EIC) Can Do For You When Tax Time Comes!

How Much Can I Get?

If you have qualifying children, you can get up to $4,716 in the EIC. If you are a worker without children, you can get up to $428. The Center on Budget and Policy Priorities has an Earned Income Tax Credit Estimator on their web site which can help you figure out how much you will receive in EIC based on your income and family size. The Earned Income Tax Credit Estimator can be found at www.irs.gov. It can be hard to get to what you want on the IRS website, so here are two other ways to find the IRS page to help figure your EIC:

• Type the shortcut iowalegalaid.org/link.cfm?2047 in your browser; OR,
• Go to the Iowa Legal Aid Website, click the box that says "Legal Information" and go to the "Work" topic. A link to the calculator is in the news bulletin in the right column.

Who Can Get the EIC for Tax Year 2007?

• Families with one child who earn less than $33,241 (or less than $35,241 for married workers) are eligible for a credit of up to $2,853.
• Families with two or more children who earn less than $37,783 in 2007 (or less than $39,783 for married workers) are eligible for a credit of up to $4,716.
• Workers without a qualifying child who earn less than $12,590 in 2007 (or less than $14,590 for married workers) are eligible for a credit of up to $428.
• Investment Income Limit = $2,900.

OTHER IMPORTANT CREDITS...Child Tax Credit = up to $1,000 per child under age 17. Workers must earn over $11,750 in 2007 to qualify for the refundable Additional Child Tax Credit.

Did you forget the Telephone Excise Tax Credit on your 2006 taxes? The credit was available to telephone customers who paid a federal telephone excise tax after February 28, 2003 and before August 1, 2006. If you didn't file a tax return in 2006 but paid this tax you can file a 1040 EZT to claim it. If you filed but did not claim this credit, you have to file an amended return to claim it.

What Children Qualify?

Qualifying children are sons, daughters, stepchildren, grandchildren and adopted children as long as they lived with you for more than six months in 2007. Brothers, sisters, stepbrothers and stepsisters - and the children of any of these relatives - qualify if they were with you for more than six months in 2007. Foster children who are placed with you by an authorized government or private placement agency also qualify. The children must be under age 19, or under age 24 if they are full-time students. Totally and permanently disabled children of any age are also qualifying children. Social Security numbers valid for employment are required for the taxpayer and the children claimed for the earned income credit.

How Do I Get the Earned Income Credit?

You must file a tax return. If you were raising children, you need to file a Federal 1040 or 1040A (not the 1040EZ) income tax return. If you are a married couple, you must file a joint return. (See exception for separated parents below.) A qualifying widow or widower with a dependent child may use this status to file and claim the EIC. An unmarried parent who does not pay more than half of the costs for maintaining the family home can file as single and still claim the Earned Income Credit for a qualifying child who lived with him or her for more than six months of the year. You must also file a form called the Schedule EIC with your tax return. You need to fill out only the front side of this Schedule EIC, and the IRS will calculate the exact amount of the credit on the back side. If you do not file the Schedule EIC, you will not get the Earned Income Credit. If you were not raising children, you can file any tax form including the form 1040EZ. You also do not have to file a Schedule EIC.

What if I Am Self-Employed?

You are eligible for the EIC, but you must fill out a special series of forms: Schedule C or Schedule C-EZ, Schedule SE, Form 1040, and Schedule EIC (if you were raising children in your home). Call the IRS to get the forms or go online. You need to carefully include all income and expenses for your business. Gather all business related receipts, bank statements, mileage records to accurately fill out these forms.

Can I Get the Earned Income Credit in My Regular Check?

Yes. The name of this program is Earned Income Credit Advance Payments. Workers who qualify and get paid every other week can get up to $63 per regular paycheck. Most families get their Earned Income Credit Payments in one lump sum by filing a federal income tax return and receiving one check from the IRS. To get some of those payments as part of every paycheck throughout the year, you can choose the Advance Payments option.

How do I set up this Advance Payment option?

You need to file a W-5 form (called the Earned Income Credit Advance Payment Certificate) with your employer. The employer cannot refuse to do this. Your employer should have this form, or you can order it free by calling toll-free 1-800-829- 3676. You may file a W-5 any time during the year. If you file a W-5 you will have to file a tax return for that tax year.

Would Anyone Not Want to Get the Earned Income Credit in a Regular Paycheck?

Two groups of people might not want to get the EIC in their paychecks. One group is employees who have more than one job. The second is where both parents work. These two groups usually have to pay back money to the IRS at the end of the year. Also, workers who get married or whose incomes go up a lot during the year also might have to pay the IRS back. To be safe, these workers should ask their employers to stop the Earned Income Credit Advance Payments in their paychecks. To do this, workers must file a new W-5 form with their employers and state on the W-5 form that the Earned Income Credit Advance Payments should stop.

What If I Am a Permanent Resident Alien Who Is Working in the U.S.?

The EIC is available to taxpayers who have a Social Security number and have a child who has a Social Security number. All Social Security Numbers must be valid for work. The taxpayer must have been a U.S. resident alien for tax purposes the entire year, and the child must have lived with the taxpayer for more than six months in the United States. If the taxpayer is married and lives with his or her spouse, the spouse must also have a social security number.

What If the Parents Are Divorced or Separated?

The parent with whom the child lived for more than six months can file for the EIC, even if the other parent can claim the child as a dependent. The parent not living with the child may be able to get the smaller EIC for workers without qualifying children.

There is one case where married but separated parents who do not want to file jointly still can claim the EIC. The parents must have lived apart for the last six months of the year and their child(ren) must have lived with one of the parents for more than half of the year. In such cases, the parent with the child(ren) who meets the rules for filing as head of household can claim the EIC.

What if the Parents Live Together But Are Not Married?

Either parent may claim the Earned Income Credit. If both parents claim the credit, the IRS will decide who receives the credit. The parent with whom the child lived the most during the tax year will receive the credit. If they both lived with the child the same amount of time, the credit will go to the parent with the highest adjusted gross income. The parents should discuss how to claim the earned income credit to make sure the family gets the biggest credit permitted by the laws.

What If I Have Not Filed in the Past?

You also can get EIC payments for the last three years - even if you did not file a tax return in those years - in addition to anything you may be eligible for in the current tax year. Therefore, you can get payments for the tax years 2004, 2005, and 2006 plus your 2007 return if you have not filed federal income tax returns during those years and you were eligible for the EIC. You will need to get a Form 1040 or 1040A for those years. You can get these forms (and any other forms) by contacting the IRS at 1-800-829-3676 or by going to www.irs.gov select Publications and Forms, previous years. If you filed taxes in 2004, 2005 or 2006, but did not claim the earned income credit and you have learned you were eligible, you can file amended returns.

Can I Get the EIC with Electronic Filing?

Electronic filing with direct deposit is the fasted way to get your refund. You can get it in as little as 10-15 days. Lower income taxpayers can go to one of your local free tax assistance sites to get this service for free. You can locate a local Volunteer Income Tax Assistance site by calling the IRS at 1-800-829-1040 or an AARP Tax Counseling program at 1-877-227-7844.. In most areas, 211 should be able to provide you with this same information.

Look Out for Tax Refund Loans!!!!

Look out for tax refund loans offered by some commercial preparers. These loans can be costly and they may only get you your money a few days faster. Unless you are in a dire emergency, these tax refund loans are really a bad financial choice. The $75 to $150 in interest and application fees is money better put into an emergency fund, towards a high interest credit card or loan, or payment of those higher utility bills this winter. The fees preparers charge for the loans are in addition to the $50 to $150 charged for preparing your return.

Does the Earned Income Credit Affect Public Assistance?

EIC payments are not income for the purposes of FIP (AFDC), Medicaid (Title 19), food assistance (which used to be called food stamps), SSI, or public/subsidized housing in the month received. That means the Earned Income Credit will almost never affect your eligibility for these programs or the amount of benefits you get. The EIC may be counted as a resource in the following months depending on the rules for the individual program.

Where Can I Get Tax Assistance?

For more information on how to apply for the Earned Income Credit, contact Iowa Legal Aid. If you have tax problems, you may be able to get help from Iowa Legal Aid's Low-Income Taxpayer Clinic. Call Iowa Legal Aid at 1-800- 532-1275 to be connected with the office serving your community. You may also contact the IRS. If you live in Iowa, contact the IRS at 1-800-829-1040, and if you live in Des Moines, contact the IRS at (515) 283-0523. The IRS number for persons with a hearing impairment with access to TTY equipment is 1-800-829-4059.

Who Can Get the EIC for Tax Year 2007? Families with one child who earn less than $33,241 (or less than $35,241 for married workers) are eligible for a credit of up to $2,853. Families with two or more children who earn less than $37,783 in 2007 (or less than $39,783 for married workers) are eligible for a credit of up to $4,716. Workers without a qualifying child who earn less than $12,590 in 2007 (or less than $14,590 for married workers) are eligible for a credit of up to $428. - Investment Income Limit = $2,900. OTHER IMPORTANT CREDITS...Child Tax Credit = up to $1,000 per child under age 17. Workers must earn over $11,750 in 2007 to qualify for the refundable Additional Child Tax Credit. Did you forget the Telephone Excise Tax Credit on your 2006 taxes? The credit was available to telephone customers who paid a federal telephone excise tax after February 28, 2003 and before August 1, 2006. If you didn't file a tax return in 2006 but paid this tax you can file a 1040 EZT to claim it. If you filed but did not claim this credit, you have to file an amended return to claim it.