Earned Income Tax Credit

Posted: Monday, January 26, 2004

WASHINGTON (AP) A tax credit for low-wage workers can mean thousands of dollars in refunds for some working families, making the springtime tax filing season a little warmer.

Taxpayers must have earned income and generally must be a U.S. citizen or resident alien to qualify for the credit. The maximum refundable earned income tax credit (EITC) for the 2003 tax year is $4,204 for a family with two or more children, $2,547 for a family with one child and $382 for those without children.

About 20 million families claim more than $30 billion each year under the EITC, but advocates for low-income families say more people could benefit. Large corporations and the IRS are separately making a strong push this year to try to reach workers who are eligible for the credit but aren't claiming it.

''That message really is that if you're eligible and you've earned that credit, we want you to claim it,'' said David Williams, IRS director of the earned income tax credit program.

The IRS is running a pilot program in Los Angeles and Miami to reach out to Hispanic workers in Spanish through television and radio programming. The Spanish-language TV network Univision plans to air two town hall-styled meetings in each city to explain the credit and how it works. Viewers can call in with questions. Univision radio will run vignettes advertising the credit.

At the same time, an organization of large employers with low-wage workers called Corporate Voices for Working Families started a campaign to teach employers how to introduce the credit to their workers.

''It's very much a hand-holding process,'' said Marriott Vice President Donna Klein, president of Corporate Voices for Working Families. ''It almost needs to be explained to employees on a one-to-one basis.''

About 75 percent of those eligible for the credit claim it, according to IRS statistics. The participation rate is highest among single mothers and lowest among singles.

To be a qualifying child for a taxpayer, the child must live with the taxpayer for more than half the year. Taxpayers who make errors when claiming the credit often overlook this requirement. Married couples must file a joint return to claim the credit.

The credit only goes to taxpayers who earn less than the specified income limits, and the credit amount decreases as the income approaches that mark. In 2003, the limit for taxpayers with two or more qualifying children is $33,692 for heads of households and $34,692 for married couples. The limit for persons with one qualifying child is $29,666 for heads of households and $30,666 for married couples. For those without children, the limit for single individuals is $11,230 and $12,230 for married couples.

Most families opt to get the credit in one lump sum after filing their tax returns, but the IRS allows taxpayers to receive a portion of the money as they work through the year in a program called the Advance Earned Income Tax Credit. Only about 130,000 individuals and couples take advantage of that option.

The IRS and advocates for low-income families say taxpayers who need help filing their EITC returns should visit one of more than 14,000 volunteer tax clinics throughout the country. Check the local newspaper or call the IRS individual help line at 1 (800) 829-1040 to find locations for Volunteer Income Tax Assistance sites.

The IRS says military families should check their eligibility because tax-free supplemental payments and combat pay don't count as income for purposes of claiming the credit.

The IRS this year will ask a tiny fraction of EITC applicants to supply extra documentation proving they qualify for the credit when they file their tax returns. About 25,000 letters went out on Dec. 1 and Dec. 8 to families with children, asking them to send some evidence that the child or children lived with them more than half the year. Taxpayers can send in an official record, or a letter or signed affidavit from a local official.

The IRS is looking for ways to reduce the program's error rate, which has caused government auditors to label it a high-risk program.

''This is a test to see whether we can affect the error rate, and how that would affect participation and taxpayer burden,'' Williams said.

On the Web:

IRS Publication 596 Earned Income Credit - http://www.irs.gov/pub/irs-pdf/p596.pdf

The 2003 Earned Income Tax Credit Outreach Program - http://www.cbpp.org/eic2003/

Corporate Voices for Working Families - http://www.cvworkingfamilies.org

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