Tax Credits for Working Families Tax Year 2005

Types of Credits Refundable Credits – Taxpayer receives full amount of credit they are entitled to, whether or not they have tax liability. Non-refundable Credits – Taxpayer receives maximum amount of credit allowed or a credit equal to their tax liability whichever is less.

Earned Income Credit Refundable Credit for working taxpayers with Earned Income and Adjusted Gross Income (AGI) of less than: –$35,263 ($37,263 married filing jointly) with 2 or more qualifying children –$31,030 ($33,030 married filing jointly) with one qualifying child, or, –$11,750 ($13,750 married filing jointly) with no qualifying children Maximum Credit (for tax year 2005) for –2 or more qualifying children $4,400 –1 qualifying child $2,662 –No children $399

Earned Income Credit Qualifications Taxpayer must have earned income (income from work) Investment income (interest, dividend income) must be less than $2,700 or less for the year Taxpayer, spouse and all qualifying children must have SSN (ITIN holders do not qualify) Taxpayer, spouse and all qualifying children must be U.S. resident or resident alien for entire year Filing status cannot be Married Filing Separately Taxpayer, spouse and qualifying children cannot be the qualifying child of another taxpayer

Child Tax Credits Partially refundable, partially non-refundable. Maximum credit is $1,000 per qualifying child for tax year For all taxpayers with adjusted gross incomes of less than $55,000 (may be higher based on filing status) Qualifying child must –be under the age of 17 on Dec. 31, 2005 –be a U.S. Citizen, national, or resident –have lived with the taxpayer more than half of 2005 (183 days) –not have provided more than half of their own support Special rules for divorced or separated parents

Child and Dependent Care Expense Credit Non-refundable credit Most commonly used credit in U.S. Credit limited to the lesser of the lower paid spouse’s earned income (or taxpayer’s earned income if unmarried), the actual expense paid, or $3,000 for one qualifying child or $6,000 for 2 or more qualifying children

Child and Dependent Care Expense Credit Qualifications Person being cared for must be –the taxpayer’s dependent child who is a U.S. citizen, national or resident, under the age of 13 when care was provided (or any age if physically/mentally incapable of self-care), who did not provide more than half their own support during the year, and who lived with the taxpayer more than half of 2005 or –the taxpayer’s dependent or spouse who is not physically or mentally capable of self-care

Child and Dependent Care Expense Credit Qualifications Credit is for expenses paid for care so taxpayer could work or look for work Taxpayer must identify the care giver and provide the care giver’s SSN (or EIN, if a business) in order to claim the credit Special rules for grandparents and siblings who are paid to care for dependents (generally not allowed) Special rules for divorced or separated parents Credit phases out at high income levels

Education Credits Two types – both non-refundable Credit for qualified education expenses incurred Hope Scholarship Credit – Maximum credit $1,500 per student for first 2 years post- secondary education Lifetime Learning Credit – Maximum credit $2,000 per return, regardless of the number of students on the return Credit phases out at high income levels

General Education Credit Qualifications Qualified student – Can be taxpayer, spouse, or any dependent Qualified expenses – Generally all that are actually incurred except for books not required by the school, insurance, medical expenses and room and board Can receive credit for expenses paid with student loans, as long as loan must eventually be repaid Filing status cannot be married filing separately

Hope Education Credit Qualifications Student must be enrolled at least half-time Student must be enrolled in first 2 years of post-secondary program Student must be enrolled in a degree- seeking or professional certification program Student cannot have been convicted of a felony possession or distribution drug charge

Lifetime Learning Education Credit Qualifications No requirement that student be enrolled half-time Student must be enrolled in a post- secondary degree program or taking courses to improve or acquire job skills No requirement that student not have been convicted of a felony possession or distribution drug charge

Tax Questions? Campaign Questions? Pam ChaneyJoanna Ramani Operations DirectorCampaign Director