Tax Credit Guide Year 2020 TABLE OF CONTENTS INTRODUCTION

What’s in this guide? Learn about Prepare + Prosper and who should use this guide.

Prepare + Prosper and its volunteers work with low- to Introduction 3 moderate-income people to build financial well-being through free tax preparation and financial services, products, and Who Should File 4 coaching, and by changing systems to create economic Types of Tax Credits 5 opportunity. Learn more at prepareandprosper.org. Earned Income 6 We know filing taxes can be a complicated process. Use this guide as a starting point when learning about Working Family Credit 7 federal and state tax credits for which you may qualify. Child Tax Credit 8 Who should use this guide? Child and Dependent Care Credit 9 This guide is for people who: • Have a household income less than $55,000 American Opportunity Credit 10 • Are a full-time or part-time resident of Minnesota Lifetime Learning Credit 11 • Want to learn about tax credits for which they may be eligible Minnesota K-12 Education Credit 12 • Want to find free options for filing taxes to get the Retirement Savings Credit 13 maximum refund In this guide, you’ll find answers to commonly asked Minnesota Homestead Credit Refund 14 questions: Renter’s Property 15 • Am I eligible for this credit? • What is the maximum credit amount? Premium Tax Credit 16 • What documents do I need to claim this credit? Forms for Each Tax Credit 17 Disclaimer: This guide should be used for informational purposes only and should Free Tax Prep 18 not be used as legal advice. This guide only covers general tax information. For more complete tax information, speak with a trained tax preparer or consult the Internal Tax Preparation Checklist 19 Revenue Service and Minnesota Department of Revenue.

- 2 - TCG - TY 2020 - 3 - TCG - TY 20 WHO SHOULD FILE TAXES TYPES OF TAX CREDITS Learn about when it would be a good idea to file taxes, even if Learn about the kinds of tax credits you can claim. you are not legally required to file.

There are instances when you may want to file a tax return even Non-refundable tax credits can reduce your tax liability though you are not required to do so. Even if you don’t have to or the amount of taxes you owe. If a non-refundable tax credit file, here are some reasons why you might want to file: reduces your tax liability to zero, you do not receive any of the • You had income tax withheld from your pay remaining credit amount. If you do not owe any tax, you do not • You qualify for the Earned Income Tax Credit receive any portion of a non-refundable tax credit. • You qualify for the Additional Child Tax Credit Example: • You qualify for the American Opportunity Credit John made $18,000 and owes $800 in taxes. He can claim • You qualify for the K-12 Education Credit a non-refundable tax credit worth $1,000. His taxes are • You rent or own a home reduced to zero but he cannot claim the remaining $200 from the non-refundable credit. WHO MUST FILE TAXES Refundable tax credits can reduce your tax liability AND any THEN file a return if If your filing And at the end of 2020 your gross income remaining credit is refunded back to you. Even if you don’t owe status is you were was at least income taxes, you can receive the full amount of refundable tax credits. under 65 $12,400 Single 65 or older $14,050 Example: Kaj made $29,000 and owes $1,000 in taxes. She can claim a under 65 (both spouses) $24,800 refundable tax credit worth $1,500. Her taxes are reduced to Married filing 65 or older (one spouse) $26,100 jointly zero AND she can claim the remaining $500 from the credit. 65 or order (both spouses) $27,400 Federal credit - To claim federal credits, file afederal income Married filing any age $5 separately tax return. (Form 1040) Head of under 65 $18,650 Minnesota state credit - To claim state credits, file a household 65 or older $20,300 Minnesota state income tax return. (Form M1) Qualifying under 65 $24,800 Minnesota state property tax refund - To claim this widow(er) with refund, fileForm M1PR. dependent child 65 or older $26,100 *There are situations, like self-employment income, which require filing at levels below this chart. - 4 - TCG - TY 2020 - 5 - TCG - TY 20 EARNED INCOME TAX CREDIT WORKING FAMILY CREDIT • Federal credit • Minnesota state credit • Refundable credit • Refundable credit

About this credit - The Earned Income Tax Credit (EITC) About this credit - The Working Family Credit (WFC) is is a refundable federal tax credit for taxpayers who worked in Minnesota’s version of the federal EITC. In general, you must 2020 and meet eligibility rules. Because it is refundable, it is meet the guidelines for the EITC and the income guidelines possible to get a refund even if you don’t owe any tax. listed below. What is the maximum credit? - For tax year 2020, the What is the maximum credit? - For tax year 2020, the maximum EITC amount is $6,600 for a family with three or maximum WFC amount is $2,541 for a family with two or more qualifying children. more qualifying children. Are you eligible? - Check the table to see if you meet income and family size guidelines. Are you eligible? - You must be a full- or part-year resident of Minnesota to claim the WFC. Check the table to see if you Number of Single/head of Maximum Married filing jointly, meet income and family size guidelines. qualifying household, income credit income less than: children less than: (up to): Number of Single/head of Maximum Married filing jointly, qualifying household, income credit income less than: 0 $15,820 $ 21,710 $538 children less than: (up to): 1 $41,756 $ 47,646 $3,584 0 $23,100 $29,100 $284 2 $47,440 $ 53,330 $5,290 1 $42,200 $48,100 $1,136 3 or more $50,954 $ 56,844 $6,600 2 $48,400 $54,300 $2,191 Additional eligibility rules for the EITC: 3 or more $52,000 $58,000 $2,541 • You must have income from a W-2 or self-employment. • You, your spouse, and any qualifying child must have a valid Social Security number. What documents do you need? - To claim the EITC or • You must have been a United States citizen or resident alien WFC, you need to provide documents stating earned income, the entire tax year. such as a W-2 or have self-employment earnings. • If not claiming qualifying children, you must be between 25 and 65 years old. • You cannot be anyone else’s qualifying child. • If married, you cannot file Married Filing Separately.

- 6 - TCG - TY 2020 - 7 - TCG - TY 20 CHILD AND DEPENDENT CHILD TAX CREDIT CARE CREDIT • Federal credit • Federal and Minnesota state credit • Non-refundable credit (CTC) and refundable credit (ACTC) • Non-refundable credit (federal) and refundable credit (MN)

About this credit - The Child Tax Credit (CTC) is a tax credit About this credit - The Child and Dependent Care Credit for families that claim a child age 16 or younger. (CDCC) is a tax credit for families that pay someone to help The CTC is a non-refundable credit, which means it can only care for a child or adult dependent. This credit is both a federal reduce the amount of tax you owe. However, if you are not and a Minnesota state tax credit. able to use the full amount of the CTC, you might be eligible What is the maximum credit? - The maximum federal for the Additional Child Tax Credit (ACTC) (see below). CDCC amount is $1,050 if you have expenses for one What is the maximum credit? - For tax year 2020, the dependent and $2,100 for two or more dependents. The state maximum CTC amount is $2,000 for each qualifying child. credit amount matches the amount available on the federal. Are you eligible? - To be eligible for the CTC, you must: Are you eligible? - You and your spouse must have: • Have a federal income tax amount greater than zero • Earned income in 2020 (special rules for students or people • Claim a qualifying dependent child age 16 or younger with disabilities) • A qualifying child must have a Social Security number • Paid someone to care for your dependent under age 13 (or while parents must have a Social Security number or Indi- older if unable to provide self-care) who lived with you for vidual Tax Identification Number (ITIN) more than half the year • Paid for the care in order to work, look for work, or attend ADDITIONAL CHILD TAX CREDIT school full-time You may be eligible for a refundable credit of up to $1,400 per • Household income less than $65,100 if claiming one child if: dependent or less than $77,100 if claiming two or more • You are eligible for the CTC but cannot get the full credit dependents (Minnesota state credit only, there is no federal amount because your taxes are too low limit on income) • You have three or more qualifying children, or you have Married, filing jointly, and had a child born in 2020? more than $2,500 of taxable earned income You may be eligible for the Minnesota CDCC, even if you did not have any eligible expenses. CREDIT FOR OTHER DEPENDENTS What documents do you need? This $500 non-refundable credit covers dependents who You must have your care provider’s taxpayer identification don’t qualify for the CTC, such as children age 17 and above, number or Social Security number as well as documentation of elderly parents, or dependents with an ITIN. your paid expenses.

- 8 - TCG - TY 2020 - 9 - TCG - TY 20 AMERICAN LIFETIME LEARNING CREDIT OPPORTUNITY CREDIT • Federal credit • Federal credit • Non-refundable credit • Refundable (up to $1,000) and non-refundable credit (up to $1,500)

About this credit - The American Opportunity Credit About this credit - If you, your spouse, or your dependent (AOC) can help make postsecondary education more attended a post-secondary institution in 2020 but are not affordable. If you, your spouse, or your dependent attended a eligible for the AOC, you may be able to claim the Lifetime postsecondary institution (education beyond high school, such Learning Credit (LLC) instead. as college) in 2020, you should see if you’re eligible. The LLC is a non-refundable credit available to students for an - For tax year 2020, the What is the maximum credit? unlimited number of years. Qualifying expenses for the LLC maximum AOC amount is $2,500 for each eligible student include tuition and fees required for enrollment. Unlike the AOC, with qualifying postsecondary expenses. Up to $1,000 of the expenses for educational materials only qualify if the student credit may be refundable. Qualifying expenses include tuition, enrollment fees, and required course materials whether or not is required to purchase materials from the postsecondary the materials are bought at the educational institution. institution. Are you eligible? - You, your spouse, or your dependent What is the maximum credit? - The LLC amount is up to must be an eligible student to claim the AOC. An eligible $2,000 per return. student is a student who: • Is pursuing a degree or other recognized credential Are you eligible? - You, your spouse, or your dependent must be an eligible student to claim the LLC. An eligible student • Is enrolled at least half-time for at least one academic must have attended a qualifying educational institution to period in 2020 acquire or improve job skills. Unlike the AOC, the student does • Has not completed the first four years of postsecondary not need to be pursuing a degree or credential. Additionally, the education at beginning of the tax year felony drug conviction rule doesn’t apply. • Has not been convicted of a felony drug offense • Has not claimed the AOC (or the Hope Credit) four times What documents do you need? Form 1098-T, provided by the educational institution, is required • Has a Social Security number or an ITIN to claim tuition expenses for the LLC. What documents do you need? Form 1098-T, provided by the educational institution, is required to claim tuition expenses for the AOC. Itemized receipts are required to claim other qualifying expenses.

- 10 - TCG - TY 2020 - 11 - TCG - TY 20 MINNESOTA K-12 RETIREMENT SAVINGS CREDIT EDUCATION CREDIT • Minnesota state credit • Federal credit • Refundable credit • Non-refundable credit

About this credit - If you paid qualifying education expenses About this credit - The Retirement Savings Credit (RSC) for your qualifying child in grades K through 12, you may be gives a special tax break to those who are saving for retirement. able to claim the Minnesota K-12 Education Credit. What is the maximum credit? - The maximum credit The credit amount is up to 75% of qualifying expenses, such as: amount is 50%, 20%, or 10% of your contributions to a retirement plan or Individual Retirement Account (IRA). Your • Paper, pens, pencils, notebooks, and rulers credit can be up to $1,000 ($2,000 if married filing jointly), • Purchase or rental of musical instruments depending on your income. • Transportation fees for school-time field trips Are you eligible? - Eligibility for the RSC depends on your • After-school educational programs, tutoring, or academic filing status and income. General guidelines to qualify for the summer camps credit are: • Computer hardware and educational software purchases (a • Age 18 or older maximum of $200 in computer and software expenses can • Not a full-time student be used to calculate the credit) • Not claimed as a dependent on another person’s return Credit Head of Married Filing Single What is the maximum credit? - For tax year 2020, the Rate Household Jointly maximum K-12 Education Credit amount is $1,000 per child. 50% $19,500 or less $29,250 or less $39,000 or less Are you eligible? - To claim the credit, you must have a 20% $19,501 - $21,250 $29,250 - $31,875 $39,001 - $42,500 qualifying child in grades K through 12. Your household income 10% $21,251 - $32,500 $31,876 - $48,750 $45,501 - $65,000 must be below $37,500 for families with one to two children. The income limit increases by $2,000 with each additional child Example: Christine files as a head of household. She’ll beyond two. (Example: The income limit for a family with four contribute $1,200 to her retirement plan this year. If her 2020 qualifying children is $41,500.) adjusted gross income is $28,000, she can claim a 20% RSC for her contribution, worth $240. What documents do you need? - To claim this credit, you must have itemized receipts of your educational expenses. What documents do you need? - Documentation of contributions to a qualifying retirement plan. This is often recorded on Form W-2.

- 12 - TCG - TY 2020 - 13 - TCG - TY 20 MINNESOTA HOMESTEAD RENTER’S PROPERTY CREDIT REFUND TAX REFUND • State property tax refund • State property tax refund • Refundable credit • Refundable credit

About this refund - Homeowners in Minnesota may be About this refund - Renters in Minnesota may be eligible eligible for the Homestead Credit Refund. This refund is for the Renters Refund. This refund is based on your income based on your income and the amount of property taxes you and the amount of rent you paid in 2020. Minnesota Revenue will pay in 2021. Minnesota Revenue starts issuing Homeowner usually issues renter refunds in July or August. The final refunds in late September. The final deadline to claim the 2020 deadline to claim the 2020 refund is August 15, 2022. refund is August 15, 2022. What is the maximum refund? - For tax year 2020, the What is the maximum refund? - For tax year 2020, the maximum property tax refund for renters is $2,210. maximum property tax refund for homeowners is $2,840. Are you eligible? - To claim the property tax refund, you Are you eligible? - To claim the property tax refund, you must: must: • Not be a dependent • Not be a dependent • Have lived in a rental unit in 2020 which was assessed • Have been a full- or part-year resident of Minnesota in 2020 property taxes • Have all property taxes paid (or have payment arrange- • Have been a full- or part-year resident of Minnesota in 2020 ments) • Have a household income less than $62,960 • Have a household income less than $116,180 • Have homestead classification approved for your home What documents do you need? • Have owned and lived in your home on January 2, 2021 • Renters need a Certificate of Rent Paid (CRP) provided by their landlord. You should receive your CRP by January What documents do you need? 31, 2021. • 2021 Property Tax Statement sent from your county in • If you do not receive a CRP from your landlord, you can March. work with Minnesota Revenue to get a Rent Paid Affidavit by calling 651-296-3781 or 1-800-652-9094 after March 1. • Mobile homeowners need a Certificate of Rent Paid (CRP) and a 2021 Property Tax Statement from your county.

- 14 - TCG - TY 2020 - 15 - TCG - TY 20 PREMIUM TAX CREDIT FORMS FOR EACH TAX CREDIT • Federal credit Want to locate a credit on your tax return? Find the correct tax form • Refundable credit and line on Form 1040 (federal), Form M1 (Minnesota), or Form M1PR below.

About this credit - If you purchased your health insurance Earned Income Tax Credit (Federal): Use Schedule EIC. Find coverage through MNsure, Minnesota’s health insurance credit amount on line 18a of Form 1040. marketplace, you may be eligible to receive the Premium Tax Credit (PTC). If you are eligible, the PTC will be available Minnesota Working Family Credit (Minnesota): Use immediately upon enrollment in an insurance plan, and you do Schedule M1WFC. Find credit amount on line 2 of Schedule not need to wait until you file taxes to receive the credit. If you M1REF. receive the advanced PTC, you must file a tax return. Child Tax Credit, Additional Child Tax Credit, and What is the maximum credit? - The maximum credit Credit for Other Dependents (Federal): Use Schedule 8812. amount is based on your family size, 2020 household income, Find credit amount on line 19 and/or line 28 of Form 1040. and the premium for a standard plan in your area. You can determine your eligibility and PTC amount when applying for Child and Dependent Care Credit (Federal): Use Form health insurance on MNsure. 2441. Find credit amount on Schedule 3, line 2 of Form 1040. Are you eligible? Child and Dependent Care Credit (Minnesota): Use • Individuals and families with incomes between 100% of the Schedule M1CD. Find credit amount on line 1 of Schedule M1REF. federal poverty line ($26,200 for a family of four) and 400% American Opportunity Credit or Lifetime Learning the federal poverty line ($104,800 for a family of four) who Credit (Federal): Use Form 8863. Find credit amount on purchase health coverage through MNsure Schedule 3, line 3 and/or line 29 of Form 1040. • Must be U.S. citizens or lawfully present in the United States (Minnesota): Use • Individuals eligible for Medicare, Medical Assistance, or Minnesota K-12 Education Credit Schedule M1ED. Find credit amount on line 3 of Schedule M1REF. MinnesotaCare are not eligible for the credit What documents do you need? You must have Form 1095- Retirement Savings Credit (Federal): Use Form 8880. Find A, Health Insurance Marketplace Statement from MNsure. credit amount on Schedule 3, line 4 of Form 1040. Where to get more information Property Tax Refund (Minnesota Property Tax Refund): Find For more information about MNsure and health insurance plans, credit amount on line 25 of Form M1PR. contact MNsure at 1-855-3MNSURE (1-855-366-7873), Premium Tax Credit (Federal): Use Form 8962. Find credit [email protected], or mnsure.org. amount on Schedule 3, line 8 of Form 1040.

- 16 - TCG - TY 2020 - 17 - TCG - TY 20 FREE TAX PREP TAX PREPARATION CHECKLIST Save hundreds of dollars by filing for free! Know what you should prepare before filing your taxes.

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About free tax preparation: 2. Income and Public Benefit Statements • Taxes are prepared by IRS-certified volunteers who are o W-2s for each job passionate and will help you get your maximum refund. o 1099 forms for retirement, Social Security, unemployment, interest, dividends, stock sales, and miscellaneous income • Free means free. There are no hidden fees at free tax o Year-end income for MFIP, SSI, MSA, GA, veterans’ benefits, workers’ preparation sites. compensation • E-file is available. When used with direct deposit, you’ll get 3. Education and Child Care Credits your refund quickly. o Record of educational expenses you paid for your children in grades K-12 o Tuition expenses paid for you or your child to attend a college or university Qualifications for free tax preparation providers: (Form 1098-T) Volunteer Income Tax Assistance (VITA) sites can generally o Student loan interest statement (1098-E) help if your annual income is $55,000 or less. AARP Tax- o Child care expenses: Provider name, address, Tax ID, or Social Security Aide program offers free tax preparation for all taxpayers, number particularly those who are age 60 or older. AARP Tax-Aide sites 4. Property Taxes do not have income or age restrictions. o Homeowners: Mortgage interest and real estate taxes paid in 2020 and Statement of Property Tax Payable in 2020 mailed by county in March Find a free tax provider or free online option: o Renters: Certificate of Rent Paid (CRP) • Call Minnesota Revenue at 1-800-652-9094 o Mobile home owners: All of the above documents • Visit www.revenue.state.mn.us/free-tax-preparation-help 5. Additional Documents o Previous year’s tax return o Verification ofhealth insurance if purchased through MNsure (Form 1095-A) o Record of charitable donations - 18 - TCG - TY 2020 - 19 - TCG - TY 20 2610 University Avenue West Suite 450 St. Paul, MN 55114 651-287-0187 www.prepareandprosper.org

TCG - TY 2020