Tax Credits for LowIncome People Who Work

1
Tax Credits for Low-Income People Who Work

• An Overview Prepared by
• the Kansas Benefits Counselors Network

2
Kansas Benefits Counselors Network

• A Project of the Cerebral Palsy Research
  Foundation of Kansas, Wichita
• Project Director Robert Hull, Vice President for
  Research
• Funded by the Social Security Administration
  under Cooperative Agreement 16-T-10013-7-03
• In cooperation with over 100 Benefits Counselors
  statewide

3
What Tax Credits?

• Federal Earned Income Tax Credit
• Kansas Earned Income Tax Credit
• Child Tax Credit
• Retirement Savings Tax Credit

4
FEDERAL

• Earned Income Tax Credit
• (EITC)
• 1999 Recipients 20 Million

5

• The Earned Income Tax Credit has been widely
  praised for its success in supporting work and
  reducing poverty. The federal credit now lifts
  more children out of poverty than any other
  government program. Some 4.8 million people,
  including 2.6 million children, are removed from
  poverty as a result of the federal EITC.
• --Nicholas Johnson, A HAND UP How State Earned
  Income Tax Credits Help Working Families Escape
  Poverty in 2001, Center on Budget and Policy
  Priorities

6
Who benefits from the EITC?

• Working families with children
• Low-income workers who do not have a qualifying
  child
• State and local economies, including low-income
  neighborhoods
• Businesses

7
Whats Good About the EITC

• Tax refund (if desired, IRS will calculate for
  workers)
• Workers can file for EITC for past 3 years
• Advance EITC workers raising children can get up
  to 50 of their tax credit in their paychecks
  50 as tax refund
• Helps employers employees increase take-home pay
  at no cost to the business

8
EITC and Workers with Disabilities

• Person receiving long-term, employer-paid
  benefits and is under minimum retirement age can
  qualify for the EITC, even if no earned income
  for the year
• Benefits from SSDI, SSI, and individually-purchase
  d disability insurance policies are not counted
  as earned income. (Individual would also need
  earned income to qualify for EITC)

9
EITC and Workers with Disabilities, continued

• A totally and permanently disabled person of any
  age can be a qualifying child for a worker if
  placed in care of the worker by an authorized
  foster care agency

10
State of Kansas

• Earned Income Tax Credit
• (KS-EITC)
• 1999 Recipients 131, 103
• Amount Claimed 21.6 Million
• Average Claim 164.76

11
Kansas EITC

• Back Filing Up to 3 years
• Percentage of federal EITC 10
• Refundable, even if no taxes owed YES
• Are workers without qualifying children eligible
  YES

12
Federal Child Tax Credit

• Eligibility workers with taxable earned income
  of 10,000 or more
• 600 for each child under 17
• Refundable, even if no taxes are owed
• Can claim in addition to the EITC

13
Retirement Savings Tax Credit

• Pre-tax salary reduction this reduces taxable
  income
• Not refundable if no taxes are owed, then no
  claim for RSTC
• Since RSTC results in a reduction of taxable
  income, less of the EITC and CTC are needed to
  eliminate taxes, resulting in more of a total
  refund

14
RSTC, continued

• Pre-tax contributions to
• 401(k) plan including SIMPLE 401(k)
• 403(b) annuity
• Governmental 457 plan
• Traditional IRA
• Roth IRA
• SIMPLE IRA plan
• Simplified Employee Pension (SEP)
• Workers entitled to deduct IRA contributions may
  still do so and also claim the Retirement Savings
  Tax Credit

15
Now for the really good news!

• Earned Income Tax Credit, Child Tax Credit, and
  Retirement Savings Tax Credit refunds do not
  count as income for TANF, General Assistance,
  SSI, Medicaid, Food Stamps, Public or Subsidized
  Housing, or Emergency Heating Assistance (LIEAP)

16
And the good news continues

• EITC, CTC, and RSTC refunds do not count as
  resources in the month received or the following
  month.

17
As the National Federation of Community
Development Credit Unions says,

• Its Your Money, Come and Get It!

18
RESOURCES

• Internal Revenue Service, www.irs.gov
• Center on Budget and Policy Priorities,
  www.cbpp.org
• National Federation of Community Development
  Credit Unions, www.natfed.org