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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
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Objectives (be able to):
1. explain EITC & child & dependent care credit2. 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 table5. explain the impact of EITC on eligibility for
food stamps, Medicaid & public housing6. list main criteria for eligible children7. describe the Advance EITC and how to apply8. know if full-time college students are eligible
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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
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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
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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
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Do you Qualify? http://www.irs.gov/individuals/article/0,,i
d=96406,00.html Outreach Kit
http://www.cbpp.org/eic2008/EITC Estimator
http://www.cbpp.org/eic2007/calculator/eitcchoose.htm
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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
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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.
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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.
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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
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Hope Credit
Student in 1st or 2nd 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
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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
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More Tax Credit Info
http://www.cbpp.org/eic2008/additional-credits.htm Child & dependent care credit Saver’s Credit Roth IRAs Education Tax Credits IRS Split refund policy
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