January 17, 2011

TO: All County FCS Agents, EFNEP, FDM, & Small Farm Assistants

FROM: Joanne Bankston, Ph.D. State Specialist for Family Economics and Management Kentucky State University Cooperative Extension Program

RE: Resource packets for the Earned Income Credit and the Child Tax Credit

Tax filing Season is rapidly approaching, and it is time to promote the Earned Income Credit (EIC) and the Child Tax Credit (CTC) campaigns. The enclosed packet of materials has information on the Earned Income Credit, (EIC), and the Child Tax Credit (CTC) for earnings in 2010. You are receiving this packet through the regular mail, and as always I am requesting that you publicize the tax credits to clientele and consumers in your county as they file their income taxes.

You will find the following materials enclosed in this kit:  2010 Earned Income Credit and Child Tax Credit Outreach materials  Letter from Joanne Bankston at Cooperative Extension  Publication written by Dr. Bob Flashman, Think Twice Before Using Instant Tax Refund? Use this publication with clientele.  An evaluation form to be filled out and returned by May 15, 2011. We will use information from the evaluation to report outreach efforts to USDA.

As the economy struggles to recover from the recession, many low and moderate income working families can use valuable federal tax credits to help pay bills and meet their children’s needs especially with cutbacks on jobs and periods of unemployment. More than ever before, many individuals and families are likely to need help from two federal tax benefits, the Earned Income Credit (EIC) and the Child Tax Credit (CTC). This year EIC can be worth as much as $5666 (this is based on income and other circumstances). Tax filers may also qualify for additional tax credits even if they did not earn enough in 2010 to owe income tax. These and other pressing circumstances have pushed to the forefront the need for effective outreach to insure that eligible workers know about the credits and how to claim them. The Earned Income Credit (EIC) is a special tax benefit for working people who earn low or moderate incomes. It’s purpose is to offset taxes, to supplement very low wages, and to provide a work incentive. The EIC can offset some or all of the taxes workers must pay, such as payroll taxes, and can cover any federal income tax workers may still owe at tax time. Workers earning low wages may also get cash back through the EIC refund. Workers who qualify for the EIC, and claim it on their federal tax return can receive a refund check from the IRS even if their earnings were too small to owe income tax.

In addition to the EIC, many families with children will qualify for the Child Tax Credit (CTC). The Child Tax Credit (CTC) is a federal tax credit worth up to $1,000 in 2010 for each qualifying child under age 17 claimed on the worker’s tax return. Many families may need assistance in preparing their tax return. VITA, (Volunteer Income Tax Assistance), is a special service of the IRS and community organizations to help persons prepare their taxes without a fee, and can assist them in filing forms. This service is available in some communities throughout Kentucky. We promote VITA sites where they are available, because fees charged by commercial tax preparers and businesses offering refund anticipation loans can be very costly. Low income workers can have a VITA representative prepare their taxes free of charge and use every penny of their return. A list of Kentucky VITA sites is being E-mailed to County FCS agents. There may be additions and changes to this list throughout the tax filing season.

New for 2011

Adoption Tax Credit More Valuable – In 2010, Congress enacted a change to the Adoption Tax Credit (ATC) that will enable more low- and moderate-income workers to receive a refund of expenses they incur in adopting a child in 2010 or 2011. (See additional information in Packet). New IRS Policy Affecting Refund Anticipation Loans – Starting 2011 tax filing season, the IRS will no longer provide tax preparers and financial institutions with the “debt indicator” on electronically filed tax returns. Tax preparers use the debt indicator to determine a taxpayer’s ability to pay back a Refund Anticipation Loan (RAL). It has been reported that consumers paid millions of dollars in fees and interest accrued on loans in 2008 for RAL’s. RAL’s and other fees can drain hundreds of dollars away from tax benefits. This is an attempt to make it more difficult for companies to offer RAL’s. (See additional information in the packet). IRS Changes in Regulation of Paid Tax Preparers for 2011 -- Commercial tax preparers will be required to register with the IRS to be permitted to file tax returns. They must obtain a Preparer Tax Identification Number (PTIN) from the IRS. A $64.50 fee must be paid to the IRS. (See Packet for more information).

Please review the packet contents for a wealth of information on EIC including: flyers and posters in English and Spanish, paycheck stuffers, information booklets, etc.

PLEASE SPREAD THE WORD BY DISTRIBUTING INFORMATION IN YOUR COMMUNITY. It is estimated that 20-25 % of eligible workers do not claim their EIC benefits. As a result they are missing money that would be available to them. Also, many workers spend and save their refunds in local communities. This strengthens the economy of their community. I am also requesting that you complete the enclosed evaluation form by May 15, 2010. We appreciate any success stories and information that you can provide on the survey. This information is very important to show impact of the program to our federal counterparts. We need your help!

Thank you for assisting Cooperative Extension and our Kentucky families in providing this information.

Joanne Bankston [email protected] (502) 597-6328