How Can I
Find Out More?

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, Email eickit@cbpp.org , www.cbpp.org . 
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 website at www.nwlc.org 
or call
202-588-5180.

Also go to the Internal Revenue Service website at www.irs.gov 
or call 1-800-TAX-1040
for detailed eligibility rules, brochures and filing forms.

Where Can Families Get Help With Tax Forms? Some Missouri communities have Volunteer Income Tax Assistance sites where low- to moderate-income families can get their tax returns filled out for free and even filed electronically. Volunteers are IRS-trained.

Many Community Action Agencies in Missouri sponsor Volunteer Income Tax Assistance sites and offer tax credit information.
Call your local Community Action Agency to find out about your community or call 1-800-TAX-1040.

If your community doesn’t have a Volunteer Income Tax Assistance site, consider working with IRS and local partners to get one started. call 1-800-TAX-1040 and ask for your nearest Taxpayer Education Office. Sites are open from late January through April 15.

Some good news for working families—recent tax code changes can bring many of them added financial relief. Not-so-good news for outreach workers—the changes make it more complicated to help families. Meeting the challenge is worth it. 

Low- and moderate-income families may qualify for one or more of three different Federal tax credits–the Child Tax Credit, the Earned Income Credit, and the Child and Dependent Care Credit. The rules differ for each of them, but this year’s changes mean that many families may qualify for all three tax credits. Many states offer additional tax credits to low-to moderate-income families. Missouri legislators are currently debating a state-level Earned Income Tax Credit bill.

What is the Child Tax Credit?

The Child Tax Credit is a federal tax credit worth up to $600 per child in tax year 2001. Families must have dependent children under age 17 to get it. Millions of families are newly eligible even if they owe no taxes. The Child Tax Credit comes as a refund from the IRS.

Who Can Claim the Child Tax Credit and How?

The 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 must be a son, daughter, stepchild, grandchild, or adopted child-a foster child can be claimed only if (s)he lived with the filer all year) 
• has taxable earned income above $10,000 
• has either a Social Security Number or an Individual Taxpayer Identification Number 
• files IRS Form 1040 or 1040A 
• files IRS Form 8812

The Child Tax Credit first is used to reduce or eliminate a family’s income tax bill. Any that remains comes back as a refund. The total size of the credit depends on the amount by which the family income goes over $10,000.

What is the Earned Income Credit?

The Earned Income 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 assistance. The credit can mean up to $2428 for workers raising one child in their home, or up to $4008 for workers raising more than one child. Even workers without children can qualify for up to $364. 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 Credit.

Who Can Claim the Earned Income Credit and How?

The Earned Income Credit is for full-time or part-time, single or married workers raising at least one “qualifying child” at home; and some childless workers. Both must meet certain income standards. 

A qualifying child is a son, daughter, stepchild, grandchild, or adopted child living in the home for more than six months of the year–a foster child must have lived with the filer all year and have been placed by a foster care agency; child must be under age 19, or under 24 if in school full-time, or totally disabled at any age. 

Taxpayers can qualify who: 

• have one child and family income under $28,281, or have more than one child and family income below $32,121; or 
• have no children, but are between ages 25 and 64 and had income below $10,710 in 2001 

To claim the credit, you must: 

• have a Social Security Number for everyone on the tax return with names and numbers that perfectly match what Social Security cards say; and 
• file IRS Form 1040 or 1040A (must file jointly to get it if married); and 
• file IRS Schedule EIC

Some workers with children can get about half their credit throughout the year as advance payments of about $100 per month added back to their paychecks in equal installments. The balance of their credits come when they file a year-end tax return. 

Workers who find it difficult to predict yearly income might want to avoid the advance payment option because they could end up being overpaid. They would then owe the IRS at the end of the year. Many workers with stable, predictable incomes might benefit from advance payments to help with groceries, paying rent or other day-to-day expenses.

The Child and Dependent Care Credit is a tax benefit that helps families pay for childcare that they need to 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 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 30 percent of expenses up to $2400 for one child or dependent, or up to $4800 for more than one child or dependent. It can mean a credit up to $720 for families with one child or dependent in care, or up to $1440 for families with more than one in care.

Who Can Claim the Child and Dependent Care Credit and How?

Families can claim the Child and Dependent Care Credit if: 

• they paid for care in 2001 for a child under age 13 or a disabled adult who lived with them, AND 
• 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), AND
• they paid over half the cost of keeping up their home (rent, food, etc.), AND 
• they file IRS Form 1040 or 1040A, AND 
• they file Form 2441 (if they use a 1040) or Schedule 2 (if they use a 1040), AND 
• the amount they paid for dependent care in 2001 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).

Back to Poverty at Issue-Winter 01-02 Table of Contents

These publications may become outdated at any time
due to changes in programs and benefits.
It is important to check with the appropriate agency
for current eligibility requirements and benefit information.

For additional information contact:
Brenda Procter, 573-882-3820; procterb@missouri.edu

Visit http://extension.missouri.edu/hes/search.htm to search this site.
 

Human Environmental Sciences Extension
HES Extension Site Administrator: exthesweb@missouri.edu

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last updated: 06/08/07