Filing a tax return can result in additional funds to help families pay their bills. The American Recovery and Reinvestment Act of 2009(ARRA) increased refundable tax credits and changed some of the rules to make it easier to qualify. “Taxpayers who usually do not file a return because they owe $0 taxes may miss additional refund dollars”, stated Joyce Lash, Resource Management Program Specialist for ISU Extension. “Even if you have no tax liability you can still receive three refundable credits, the Earned Income Credit, Additional Child Tax Credit and a new American Opportunity Education Tax Credit”
The Earned Income Credit (EIC) is for working families who have incomes below $48,279. The refund was established to off-set increases in the amount of Social Security and Medicare taxes that are withheld from paychecks. Individuals who pay Self-Employment Taxes can also claim the credit. The refund amount varies depending on the earned income and number of children included on the tax return. To claim the EIC you must be a US Citizen and have a social security number. The ARRA increased the maximum that a family can receive to $5,657. The credit is used first to reduce the federal taxes that are due and remaining amounts are paid as a tax refund.
Taxpayers qualify for a Child Tax Credit of $1000 for each dependent included on a tax return. This credit can only be used to reduce income taxes to $0. The Additional Child Tax Credit was established to provide low income families with a refund of a portion of the credit when their tax liability was too low to take advantage of this tax reduction. The ARRA act lowered the amount of earned income that a family must have to qualify for the Additional Child Tax Credit to $3000. The taxpayer is eligible for the amount that remains after their income tax is reduced to $0 or 15% of their earned income that exceeds $3000. The smallest amount is used for the refund.
In 2009 and 2010 taxpayers can use the American Opportunity Education Tax Credit which is a modification of the Hope Credit. The amount that a family can qualify to receive if they have a dependent attending college has been increased to $2,500. The Hope Credit can be claimed for the Junior and Senior college years in addition to the first two years of education. The expenses that can be claimed for the credit now include classroom materials. For the first time part of the credit, a maximum of $1000 per student or 40% of the credit is refundable.
Families with incomes below $48,000 may have their taxes prepared at Volunteer Income Tax Assistance sites throughout Iowa. Volunteers are certified by the IRS. The sites can prepare the 1040EZ, 1040A, and 1040 tax returns. Complicated returns for farmers, business owners, and those with multiple investments are outside the scope of the VITA program. To find a site near you call the IRS at 1-800-829-1040 or 211. Federal and state returns are filed electronically and refunds are deposited within 10 days to checking and/or savings accounts.
JL/tc
11/5/2009