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Winter 2006 |
Tax
Year 2005: Credits for people who work
Sandra McKinnon, MS
Family Financial Education
Specialist
McKinnonS@missouri.edu
Sizeable tax credits exist for
working families—especially those with children—but as many as 10 percent of eligible
Missouri families do not file for them.
Three Federal tax credits are available to low- and
moderate-income families. The credits’ rules differ, but many families may
qualify for all three by filing IRS Form 1040 or 1040A. Low-income families who
are not required to file a tax return might greatly benefit from doing so.
The Child Tax Credit is a federal tax credit worth up
to $1000 per child. Millions of families became eligible last year even if they
owed no taxes.
Generally, the 2005 Child Tax Credit is available to a
single or married worker who:
·
is able to claim
a child under age 17 as a dependent.
·
has either a
Social Security Number or an Individual Taxpayer Identification Number.
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 is over $11,000.
The Earned Income Credit is a tax benefit for low- to
moderate-income workers raising at least one “qualifying child” at home—and
some childless workers. The credit reduces tax burden, supplements wages,
and makes work more attractive than public benefits. The
credit can mean up to $2,662
for workers raising one child in their home, or up to $4,400 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. A qualifying 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 $31,030 (or $33,030 for married workers); or
·
have more than
one child and family income below $35,263 (or $37,263 for married workers).
Workers between ages 25 and 64
with income below $11,750 (or $13,750 for married workers) and do not have
children can qualify for up to $399.
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
Schedule EIC.
Many workers with stable,
predictable incomes can benefit from receiving advance payments to help with
groceries, paying rent or other day-to-day expenses. Visit your human resources
office.
The Child and Dependent Care Credit helps
families pay for childcare they need to work or look for work. It also helps
workers pay for 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 special rules apply for children of divorced or separated
parents.
A credit up to $1050 for families with one child
or dependent in care, or up to $2100 for families with more than one in care,
is available. |
Families can claim this
credit if:
- they paid for care 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 Form 2441 (if they use a 1040) or
Schedule 2 (if they use a 1040), AND
- the amount they paid for dependent care in 2005
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.
Adapted from “Tax Credits for
People Who Work,” by Brenda Procter, MS, Consumer & Family Economics,
College of Human Environmental Sciences, University of Missouri-Columbia,
11/1/05, http://missourifamilies.org/features/financearticles/taxcredit.htm
For more information:
Internal Revenue Service. http://www.irs.gov, 1-800-TAX-1040.
Volunteer Income Tax Assistance. Some Missouri communities have Volunteer
Income Tax Assistance sites where low- to moderate-income families can get tax
returns filled out free and filed electronically. For a site nearest you, visit
http://extension.missouri.edu/cfe/poverty/taxsites.htm.
More tax articles. http://missourifamilies.org/money/index.htm
