Earned Income Tax Credits

Overview:

If you are like many residents of northwestern Pennsylvania, you work hard, but you don't earn a lot of money, and want to keep more of the money that you make.

The Earned Income Tax Credit (EITC) is a program for people who earn low-to-moderate incomes. EITC can reduce your federal taxes, and can mean a refund. In simple terms, working families and individuals may keep more of the money they earn.

Originally approved by Congress in 1975, the tax credit legislation was designed to give people an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

For example, in Erie County in 2003, there were 20,443 federal tax returns that received EITC. The average tax credit per claimant was $1,703.

While many moderate-to-low income taxpayers apply for the credit, it is estimated that 15 percent of eligible claimants in Pennsylvania fail to apply for the program.

EITC has no effect on certain welfare benefits, and should not be a reason to avoid the credit. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments.

To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a tax return.

Basic Requirements:

In order to apply for EITC, you must meet the following requirements:

• Must have a valid Social Security Number
• You must have earned income from employment, or self-employment.
• Your filing status cannot be married, filing separately.
• You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
• You cannot be a qualifying child of another person.
• > If you do not have a qualifying child, you must:
  > be age 25 but under 65 at the end of the year,
  > live in the United States for more than half the year,
  > not qualify as a dependent of another person

Filing the Tax Forms Yourself:

To figure the EIC yourself, use the EIC worksheet in the instructions for the form you are using (Form 1040, Form 1040A, or Form 1040EZ). If you have a qualifying child, complete Schedule EIC and attach it to your tax return. Schedule EIC provides the IRS with information about your qualifying children, including their names, ages, Social Security Numbers, relationship to you, and the amount of time they lived with you during the year.

The IRS has posted a lot of information to help you with the Earned Income Tax Credit on their Web site at www.irs.gov . In addition, you can call the IRS at their toll free number (800) TAX-1040 for help with questions or problems about individual tax returns.