Feature Articles: Taxes
Tax credits for people who work
Brenda Procter, M.S., state specialist & instructor, Personal Financial Planning, College of Human Environmental Sciences, University of Missouri Extension
Sizeable tax credits still exist for working families
— especially those with children — but as many as 15 to
20 percent of eligible Missouri families still do not
file for them. Families making so little that they are
not required to file a tax return might greatly benefit
from doing so.
Low- and moderate-income families may qualify for one
or more of three federal tax credits — the Child Tax
Credit, the Earned Income Tax Credit and the Child and
Dependent Care Credit. The credits’ rules differ, but
many families may qualify for all three.
Child Tax Credit
The Child Tax Credit is a federal tax credit worth up to $1,000 per child in tax year 2008. Families must have dependent children under age 17 to get it. Millions of families became eligible last year even if they owed no taxes. The additional tax credit comes as a refund from the IRS.
Generally, the 2008 Child Tax Credit is available to
a single or married worker who:
- is able to claim a child under age 17 as a dependent (child must live in the U.S. as a citizen or resident alien and be a son, daughter, stepchild, grandchild, adopted child, agency-placed foster child, or sibling, step-sibling, niece or nephew being raised as the taxpayer’s own)
- has had the qualifying child live in taxpayer’s household for more than half of the year, and the child must not have provided more than half of his/her own support
- has either a Social Security number or an Individual Taxpayer Identification Number
- files IRS Form 1040 or 1040A.
The Child Tax Credit is first used to reduce or
eliminate a family’s income tax bill. Any portion of the
Child Tax Credit that remains comes back as a refund in
the form of the Additional Child Tax Credit. The total
size of the credit depends on the amount by which the
family earned income is more than $8,500.
Earned Income Tax Credit
The Earned Income Tax Credit is a special tax benefit
for low- to moderate-income workers. It reduces their
tax burden, supplements wages and makes work more
attractive than public benefits. The credit can mean up
to $2,917 for workers raising one child in their home,
or up to $4,824 for workers raising more than one child.
Although children must meet residency requirements, a
child does not have to be claimed as a dependent to
qualify a worker for the Earned Income Tax Credit. Even
workers without children can qualify for up to $438.
The Earned Income Tax Credit is for full-time or
part-time, single or married workers raising at least
one qualifying child at home — and some childless
workers. Workers must meet certain income standards.
A qualifying child is a son, daughter, stepchild, adopted child, agency-placed foster child, or grandchild; or a sibling, stepsibling, niece, nephew, stepniece or stepnephew being raised as the taxpayer’s own. Any qualifying child must be under age 19, or under 24 if in school full-time, or any age if totally disabled.
Taxpayers can qualify who:
- earned less than $33,995 (or $36,995 for married workers) and were raising one child in their homes may be eligible for a credit of up to $2,917
- earned less than $38,646 (or $41,646 for married workers), and were raising two or more children in their homes, may be eligible for a credit of up to $4,824
- are at least age 25 and under 65, who earned less than $12,880 (or $15,880 for married workers) and were not raising children in their homes may be eligible for a credit of up to $438
To claim the credit, you must:
- have earned income from wages or self-employment
- have a Social Security number for everyone on the tax return with names and numbers that perfectly match what Social Security cards show
- file IRS Form 1040 or 1040A (must file jointly to get it if married)
- file IRS Schedule EITC, if you have qualifying children
Some workers with children can get almost half their credit throughout the year as advance payments added back to their paychecks in equal installments. The balance of their credits comes when they file a year-end tax return. Many workers with stable, predictable incomes can benefit from advance payments to help with groceries, paying rent or other day-to-day expenses.
Child and Dependent Care Credit
The Child and Dependent Care Credit is a tax benefit
that helps families pay for child care while they work
or look for work. It also helps workers pay for the care
of a spouse or adult dependent who is incapable of
self-care. It can offset taxes taken out as payroll
withholding and cover what is still owed at the end of
the year, depending on the size of the credit. In most
cases, the credit can only be claimed for a child who is
claimed as a dependent, but there are special rules for
children of divorced or separated parents.
The Child and Dependent Care Credit differs from both the Earned Income Tax Credit and the Child Tax Credit in that families earning too little to pay federal income tax cannot take the Child and Dependent Care Credit. The Child and Dependent Care Credit is between 20 and 35 percent of expenses up to $3,000 for one child or dependent, or up to $6,000 for more than one child or dependent. It can mean a credit up to $1,050 for families with one child or dependent in care, or up to $2,100 for families with more than one in care.
Families can claim the Child and Dependent Care
Credit if:
- they paid for care in 2008 for a child under age 13 or a disabled adult who lived with them, and they had earned income during the year
- they needed the care to work or look for work (both spouses must need the care in a two-parent family, unless one is a full-time student or disabled)
- they paid more than half the cost of keeping up their home (rent, food, etc.)
- they file IRS Form 1040 or 1040A
- they file Form 2441 (if they use a 1040) or Schedule 2 (if they use a 1040)
- the amount they paid for dependent care in 2008 was less than their income for the year (for married couples filing jointly, the care must have cost less than the income of the lower-earning spouse)
For a free, easy-to-understand tax credit outreach kit, contact:
The Center on Budget and Policy Priorities
820 First Street, NE, Suite 510
Washington, DC 20002
202-408-1080,
Fax: 202-408-1056,
E-mail eickit@cbpp.org,
On the Web at
http://cbpp.org/pubs/eitc.htm
The kit includes detailed worksheets, outreach strategy ideas, flyers, posters, brochures in both English and Spanish and an envelope stuffer.
The National Women’s Law Center has materials on the Child and Dependent Care Credit. Contact them through their Web site at http://nwlc.org/ or call 202-588-5180.
Also go to the Internal Revenue Service Web site at http://www.irs.gov/ or call 1-800-TAX-1040 for detailed eligibility rules, brochures, and filing forms.
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Last update: Tuesday, May 05, 2009
