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Guide to Low Income Tax Credits

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Guide to Low Income Tax Credits Guide to Low Income Tax Credits Author Rosemary R. French, President Benchmark Institute Publisher Benchmark Institute www.BenchmarkInstitute.org © 2014 Benchmark Institute (Updated July, December 2015) ____________________________________________________________________________________ _________ GUIDE TO LOW INCOME TAX CREDITS 1 © 2014 BENCHMARK INSTITUTE CONTENTS Three Guidelines for Legal Services Advocates ..................................... 4 Low Income Tax Credits: Overview .......................................................... 5 The Earned Income Tax Credit ......................................................................................................... 5 State Earned Income Tax Credits .................................................................................................... 6 California (SB 80) ................................................................................................................ 7 Child Tax Credit ................................................................................................................ 8 Qualifying Child Limitations Additional Child Tax Credit The Child and Dependent Care Credit ............................................................................ 10 Requirements Credit Amount Claiming the Credit State Child and Dependent Care Credits ....................................................................... 10 California The Earned Income Tax Credit ................................................................. 12 Category Eligibility ..................................................................................................12 Qualifying Child Custodial Parents SSN # Requirement Immigrants Financial Eligibility ...................................................................................................12 Resources Earned Income Chart Procedural Eligibility .......................................................................................................... 15 Filing for Past Tax Refunds Benefit Amount ................................................................................................................... 15 The EITC Estimator Earned Income Credit and Child Tax Credit Comparison Chart 2015 ........................... 16 Credit Impact on Public Benefits ............................................................................17 American Taxpayer Relief Act of 2012 .............................................................................. 17 California SSI Veterans’ Benefits Housing Public charge Warning: RALs, RACs and other Rip-offs ................................................ 19 Fringe Preparers ............................................................................................................... 20 California RAL Statute ...................................................................................................... 20 ____________________________________________________________________________________ _________ GUIDE TO LOW INCOME TAX CREDITS 2 © 2014 BENCHMARK INSTITUTE Client Communities Least Likely to File ................................................... 22 Workers with Disabilities & Families Raising Children with Disabilities............................ 22 Domestic Violence Survivors ............................................................................................ 22 Foster Parents .................................................................................................................. 22 Grandparents Raising Grandchildren ............................................................................... 23 Low Income Workers without Children ............................................................................. 23 Native Americans .............................................................................................................. 23 Refugees ........................................................................................................................... 24 Veterans ............................................................................................................................ 24 Free Tax Preparation .................................................................................. 25 VITA (Volunteer Income Tax Assistance) ........................................................................... 25 TCE (Tax Counseling for the Elderly) ................................................................................. 25 Facilitated Self-Assistance .................................................................................................. 25 Free File .............................................................................................................................. 25 I-CAN! ................................................................................................................................ 25 The Armed Forces Tax Council ......................................................................................... 25 California ............................................................................................................................. 25 Resources ................................................................................................... 26 Internal Revenue Service ................................................................................................. 26 EITC Home Page EITC Marketing and Communication Tools The EITC Assistant IRS e-file Refund Cycle Chart Low-Income Taxpayer Clinics (LITC) The Taxpayer Advocate Service (TAS) Center on Budget and Policy Priorities ............................................................................ 27 “Money Talks! Have You Heard?” Community Outreach Kit The National EITC Outreach Partnership State EITC On-Line Resource Center ................................................................................ 27 Tax Credits for Working Families Blog ............................................................................. 27 The EITC: Good for Our Families, Communities and Economy – 2012 ........................ 27 Interactive Tools .................................................................................................................. 27 Quick Links to Flyers and Resources ...................................................... 28 ____________________________________________________________________________________ _________ GUIDE TO LOW INCOME TAX CREDITS 3 © 2014 BENCHMARK INSTITUTE Three Guidelines for Legal Services Advocates 1. Always ask: Is the client, family member or friend currently working, or has worked within the last three years? Educate. Alert community partners. 2. Consider clients who fall into groups least likely to file. Workers with Disabilities & Families Raising Children with Disabilities Domestic Violence Survivors Foster Parents Grandparents Raising Grandchildren Low Income Workers without Children Native Americans Refugees Veterans 3. Consider how tax credit may affect clients in your own housing, public benefit and family cases; e.g., is County Welfare Department incorrectly counting the refund as income or resource to make the client ineligible or lessen benefit amount? Is PHA or other housing provider counting it to determine eligibility for rental assistance or rent amount? Are domestic violence survivors receiving their payments in the safest possible way? 4. Refer clients to competent groups to advise and help them file for tax credits. (Quick Links to Flyers and Resources, p. 28) ____________________________________________________________________________________ _________ GUIDE TO LOW INCOME TAX CREDITS 4 © 2014 BENCHMARK INSTITUTE Recent ground-breaking research suggests the Low Income Tax income from the EITC and CTC credits leads to Credits benefits at every life stage. For example, children in families receiving the credits do better in school, are likelier to attend college, Overview and can be expected to earn more as adults.2 Tax credits — amounts that reduce tax liability — are among the most potent anti-poverty The tax system provides an administratively programs for families with children convenient way to aid low-income working families. Unlike most other agencies, the IRS Advocacy Alert: Our job as legal advocates is has reliable employer-provided information on to make sure our clients and client communities earnings, the basis for credit eligibility. And it’s take full advantage of these benefits — no easier for low-income families to claim credits matter what our practice specialty. on their tax returns than to apply for assistance at welfare offices—a major reason why more eligible people receive tax credits than TANF or Most tax credits are nonrefundable credits SNAP benefits. because they reduce tax liability to zero, but not below. Refundable tax credits, on the other The Earned Income Tax Credit hand, reduce tax liability below zero, allowing The Earned Income Tax Credit (EITC), enacted filers to receive a refund. in 1975, is a refundable federal tax credit available to assist working families and This Guide focuses on these low income tax individuals. The EITC provides more than $62 credits: 3 billion each year through the tax code. • Earned Income Tax Credit • Child Tax Credit • The Child and Dependent Care Credit The EITC is available to low and moderate- income workers regardless of their tax liability — even if they don’t have to file or pay taxes. Impact The credit amount that taxpayers receive Refundable tax credits can substantially reduce
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