Federal Income Tax Credits

2 Tax Credits  $ for $ reduction in amount of income tax owed  Unlike deductions where the benefit depends on your marginal tax bracket  SOME credits are refundable  you can get $ back even if you do not owe taxes  must file a tax return to collect

3 Objectives (be able to):  1. explain EITC & child & dependent care credit  2. determine eligibility for EITC & Child Credit  3. know approximate dollar amounts of EITC and maximum income amounts  4. estimate EITC payments using the online calculator or print table  5. explain the impact of EITC on eligibility for food stamps, Medicaid & public housing  6. list main criteria for eligible children  7. describe the Advance EITC and how to apply  8. know if full-time college students are eligible

Earned Income Tax Credit (EITC)

5 Earned Income Tax Credit for Low Income Workers  Credit  $ for $ reduction in tax  Refundable credit  allows refund > amount of tax due  may qualify even if you don’t owe taxes  must file a tax return to collect EITC

6 EITC  Amount of credit based on income (AGI) & family size  Must file tax return to claim the credit  Even if you don’t owe taxes  Can arrange Advance payments  don’t need to wait until end of tax year  receive monthly payments instead

7 EITC Eligibility  Must be employed  Must have valid SS#  Lots of rules apply  2007 maximum income  $39,783 if married filing jointly (> 1 kid)  $14,590 if married filing jointly (no kids)  $12,590 if single, no eligible children

8  Do you Qualify?  406,00.html 406,00.html  Outreach Kit   EITC Estimator  oose.htm oose.htm

9 EITC Summary  Income tax credit for low income workers  Advance EITC  Don’t wait until end of year to collect  Underutilized- lots of eligible workers fail to claim the credit  Some states (Not UT) offer EITC

Child & Dependent Care Credit

11 Child & Dependent Care Credit  Parents can claim up to $3,000 in dependent care expenses per child (or adult)  up to $6,000 for two or more children  Unlike EITC, child care credit is NOT refundable  families earning too little to pay federal income tax cannot use this credit  The EIC and CTC do not affect a family’s eligibility for child care credit.

12 Amount of Child Care Credit  depends on  the number of children or dependents in care,  a family’s income, and  the amount the family paid for care during the year.  It can be as much as  $1,050 for families with one child or dependent in care  $2,100 for families with more than one child or dependent in care.

Post-Secondary Education Tax Credits

14 Hope Credit & Lifetime Learning Credit  Not refundable (must owe taxes to benefit)  Pay for qualified education expenses for self, spouse, or dependents  Tuition and fees  Colleges and vocational schools  2007 AGI <$57,000 ($112,000 if married)  Claim one or the other, not both

15 Hope Credit  Student in 1 st or 2 nd year of college  Pursuing undergraduate degree  100% of the first $1,100 eligible expenses  +50% of the next $1,100  Maximum credit is $1,650

16 Lifetime Learning Credit  any point in post-secondary education  don’t need to be seeking degree  40% of the first $10,000 of eligible expenses  maximum credit is $2,000/ household,  credit is per household, not per student  IRS Form 8863 for LLC or Hope

17 More Tax Credit Info  credits.htmhttp:// credits.htm  Child & dependent care credit  Saver’s Credit  Roth IRAs  Education Tax Credits  IRS Split refund policy