About Tax Credits – A Great Way to Help Kids

MaryLou Beaver, Director, Every Child Matters in New Hampshire

It’s tax time again, and in keeping with our focus on child poverty and the programs available to help, I’m going to write about the CTC and the EITC. This jumble of acronyms stands for tax credits that help both low- and moderate-income families. Unfortunately, many don’t know about them or about the eligibility requirements and thus don’t take advantage of them when they file their taxes. Please help get the word out on tax credits so we can help ensure those in need get the help they deserve.

The Child Tax Credit (CTC) is one such program; it is a federal tax credit worth up to $1,000 per child. New rules make the credit more available to working families, even if they did not earn enough to owe federal income taxes. The CTC can reduce or eliminate the tax you owe.

For working families with higher incomes, CTC is reduced $50 per $1,000 for families with adjusted gross incomes of more than $110,000 on a joint return, $75,000 on a single return, and $55,000 for a married person filing separately.

The amount you receive is based on the number of dependent children you have under age 17, and the amount of federal income tax you may owe.

The Earned Income Tax Credit (EITC) is another. Following is information from the Center on Budget and Policy Priorities about the EITC.

“The Earned Income Tax Credit (EITC) is a federal tax credit for low- and moderate-income working people. It is designed to encourage and reward work as well as offset federal payroll and income taxes. The EITC is “refundable,” which means that if it exceeds a low-wage worker’s income tax liability, the IRS will refund the balance. Twenty-five states, including DC, have established their own EITCs to supplement the federal credit.

In 2011, working families with children that have annual incomes below about $36,000 to $49,000 (depending on marital status and the number of dependent children) may be eligible for the federal EITC. Also, working poor people without children that have incomes below about id=”mce_marker”3,600 (id=”mce_marker”8,700 for a married couple) can receive a very small EITC.

The EITC is designed to encourage and reward work. Beginning with the first dollar, a worker’s EITC grows with each additional dollar of earnings until the credit reaches the maximum value. This creates an incentive for people to leave welfare for work and for low-wage workers to increase their work hours.

This incentive feature has made the EITC highly successful. Studies have shown, for example, that the EITC — especially in the presence of a strong labor market — has encouraged large numbers of single parents to leave welfare for work. The Committee for Economic Development, an organization of 250 corporate executives and university presidents, concluded in 2000 that “The EITC has become a powerful force in dramatically raising the employment of low-income women in recent years.”

In 2009, the EITC lifted about 6 million people out of poverty, including about 3 million children. The poverty rate among children would have been nearly one-third higher without the EITC. The EITC lifts more children out of poverty than any other program.

The EITC reduces poverty by supplementing the earnings of workers with low wages and low earnings. There has been broad bipartisan agreement that a two-parent family with two children with a full-time, minimum-wage worker should not have to raise its children in poverty. At the federal minimum wage’s current level, such a family can move above the poverty line for an average family of four only if it receives the EITC as well as SNAP (food stamp) benefits.

For young children, moving out of poverty is particularly important. Research has found that lifting income in early childhood not only tends to improve a child’s immediate educational outcomes, but also is associated with more schooling, more hours worked, and higher earnings in adulthood. One such study showed a link between an increase in the EITC for families with more than two children and an increase in achievement in middle childhood for children in these families.”

The IRS estimates, however, that one in five of eligible people could miss out on the EITC because they don’t know about it, don’t know that they qualify, or don’t know where to find free tax filing assistance.

The good news is that free tax filing assistance is available for some families and individuals. Below you will find several ways to get help filing your tax return. Also, about half the states have established their own EITCs to supplement the federal credit. Be sure to check with the preparer of your return or with the IRS to see if your state is one of them.  Click here.

Visit a local Volunteer Income Tax Assistance (VITA) site, The Vita Program offers free tax help to low- to moderate-income ($58,000 and below) people who cannot prepare their own tax returns.

Visit a local American Association of Retired Persons (AARP) tax preparation site. The IRS certifies volunteers to provide free tax help through the Tax-Aide Program. To locate the nearest site, go to the AARP Tax-Aide locator site or call 1-888-227-7669.

You could do your taxes yourself, by going online to The Internal Revenue Service web site www.irs.gov.