Bridging the Gap Webinar Series, December 2011Hillary Lazar, Program Director, NHSA

MONEY THAT MATTERSThe 101's of Connecting Working Families with Tax Credits

Understanding the Basics: Refundable Tax Credits

Refundable Tax Credits: What are they?

Non-refundable Taxes: • Reduces or eliminates taxes owed• No money back

Refundable Taxes: • Reduces or eliminates taxes owed• Leftover money back in cash refund

Refundable Tax Credits: What are they?

Tax credit received:

Taxes owed:

Cash I get back with a non-refundable credit:

Cash I get back with a refundable credit:

$400

$1000

$0

$600

For example:

Refundable Tax Credits: What are they?

Income Taxes Owed

Remaining Tax Credit

- $400

$1,000 = $600

Non-Refundable Tax Credit

Refundable Tax Credits: What are they?

Refundable Tax Credit

Income Taxes Owed

Remaining Tax Credit

- $400

$1,000 = $600

Refundable Tax Credits: Why are they important?

Three Reasons for Refundable Credits:

1. Offset income and payroll taxes

2. Supplement wages

3. Provide a work incentive

Refundable Tax Credits: How do workers use the credits?

Medical Expenses

TransportationRent & Utilities

Basic Needs

Child Care

The credits help workers keep working and care for themselves and their children.

Refundable Tax Credits: Which credits are refundable?

Two Major “Refundable” Tax Credits:

1. The Earned Income Tax Credit

2. The Additional Child Tax Credit

The Earned Income Tax

Credit

The Earned Income Tax Credit: What is it?

• Largest Refundable tax credit

• For low to moderate-income working families

• For low-income individuals

The Earned Income Tax Credit: Why is it important?

The EIC Lifts More than 9 Million Above the Poverty Line.

5.0 Million Children

4.6 Million Adults 2009

The Earned Income Tax Credit: Why is it important?

Boosts Workers’ Income:

• $8/hour job

• $16,000 annual

= $10+/hour job

= $19,000+ annual

The Earned Income Tax Credit: How much is it worth?

For 2011:

Income limits for married workers are $5,080 higher than these amounts.

Workers not raising children must be between the ages of 25 and 64.

Investment income cannot exceed $3,150.

Number of children:

Income less than:

EIC up to:

3 or more children $43,998 $5,751

2 children $40,964 $5,112

1 child $36,052 $3,094

No children $13,660 $464

The Earned Income Tax Credit: How much is it worth?

The Earned Income Tax Credit: Other Criteria

Each child claimed must count as a “qualifying child”

Immigrant applicants must be legally authorized to work

The AdditionalChild Tax Credit

(and other credits for working families)

The Additional and Child Tax Credits: What are they?

• CTC: Non-refundable tax credit

• ACTC: Refundable tax credit (for workers who don’t owe taxes)

• For low and moderate-income families

• For families with children

The Child Tax Credit: How much is it worth?

For families with annual income under:

• $110,000 for married couples

• $75,000 for single or head of household

• $55,000 married filing separately

$1000 for every “qualifying child”

The Child Tax Credit:Other Criteria

Filers must have children

Each child claimed must count as a “qualifying child”

Immigrant applicants and children musthave a valid ITIN

The Additional Child Tax Credit: Other Information

What it is worth:

Amount of credit leftover from the CTC

OR15% of taxable income after $3,000

Must have more than $3000 in taxable income

The American Opportunity Tax Credit (formerly HOPE)

• Helps pay for college tuition and education-related expenses

• Worth up to $2,500

• Partially refundable

• Up to $1,000 can be claimed even if no income tax is owed

The Making Work Pay Credit

• Bonus for workers in 2010 (ARRA)

• Most receive credit automatically in paycheck

• Up to $400 for most ($800 for married couples filing jointly)

• Income limits are $75,000 (single) and $150,000

• Helps cover child care or caregiver expenses

• Maximum expenses that can be claimed:– $3,000 for one dependent, $6,000 for two or more

• Credit amount = 20 - 35% of expenses – depending on income

• In a few states the credit is refundable

Child and Dependent Care Credit

Claiming the Credits

Claiming the Credits: Means Filing Taxes!

Employees must file a tax return!– Form 1040 or Form 1040A – not 1040EZ for workers with children – EIC - Schedule EIC – CTC - Form 8812– For CDCC – Form 2441– For AOTC – Form 8863– For MWPC – Schedule M

Workers not raising children can file any form

Eligible workers can claim EIC and CTC refunds for up to 3 previous years

Claiming the Credits: Means Filing Taxes!

A copy of 2010 tax return

W-2 forms from all jobs. If you don’t have the W-2, bring final pay stubs, if available

1099 forms for any other income Any IRS notices received during 2011

Proof of other income and expenses

Social Security Numbers for worker, spouse and any children born before 12/31/11 – for the EITC

Individual Taxpayer Identification Numbers (ITINs) documentation – for the CTC

Claiming the Credits: Avoid Commercial Tax Preparers

70% Use CommercialTax Preparers

30% Self-Prepareor Use Free Filing Programs

EITC Claimants

Average fees range from $85 - $120 for e-filing.

Claiming the Credits: Avoid Refund Anticipation Loans

• High-interest loans – can be over 180 percent

• Processing fee – can be $80 or more

No guarantee refund will equal the loan amount.

Claiming the Credits: Free Tax Preparation services

• Volunteer Income Tax Assistance (VITA) - Free preparation for low-income workers

- Sites across the country - Volunteers trained under IRS guidance- Taxpayers can receive refund in 7-12 days through e-filing

• Online Calculators

Claiming the Credits: From Credit To Savings

• Use Direct Deposit and Split refund to start saving money

Outreach info and materials: www.splitrefund.net

Claiming the Credits: From Credit To Savings

• Promote the EIC and CTC with asset development programs:

- Bank Accounts- Individual Development Accounts (IDAs)- Car Ownership Programs - Homeownership Programs

• Connect taxpayers to financial resources:

- Financial Education Classes - Credit Reports and Credit Repair - Other Earned Benefits – SNAP, WIC, Medicaid, CHIP, LIHEAP, Child Care Subsidies

Tax Credit Outreach

for Employers

and Providers

Tax Credit Outreach: Why Bother?

75 – 80% Claim EIC 20 - 25% Do Not Claim EIC

EIC Eligible Workers

= $10 billion

Tax Credit Outreach: Why Bother?

Tax Credit Outreach: You Don’t Have to be an Expert

You do NOT have to be a tax expert to help families claim their credits.

1. Raise Awareness

2. Connect them with the Experts and Enrollment Specialists

3. Incorporate outreach into your regular routine/increase outreach

Tax Credit Outreach:First Steps

What outreach works best for you and your organization?

• Who do you want to connect w/ tax credits• What’s your role• Existing programs• Communication• Special Considerations

Self-Assessment:

For Employers/HR: How toRaise Awareness Include fliers with paychecks/stubs or when

distributing W-2s

Put up posters in the break room or bathrooms

Talk about credits during staff meetings

Offer to do one-on-one conversations about taxes and/or finances

Bring in a VITA volunteer counselor for an information or enrollment session

For Providers: How toRaise Awareness Mail out info

Put up posters throughout the site

Talk about tax credits and refer clients to VITA sites in one-on-one sessions

Piggyback on existing programs

Bring in a VITA volunteer counselor for an information or enrollment session

Become a VITA site or join a community outreach campaign

For Employers and Providers: How to raise awareness

7 is the MAGIC number.

For Coalition-builders: How to Raise Awareness Distribute tax

credit info and direct workers to free tax filing sites

Conduct outreach events and create opportunities to file returns

Get in position to enrich and sustain outreach efforts in the future

Engage others in reaching out through their own networks

Expand and improve free tax filing sites

For Coalition-builders: How to Raise Awareness

PARTNERSHIPS

Tax Credit Outreach: How to Talk About Tax Credits Talking points to emphasize:

It’s for working families

They earned it – they should get it!

The financial crisis

It’s a simple process

Use Language That’s Empowering.

Tax Credit Outreach:Use Existing Resources

• Contact the IRS to locate a VITA Site: 1-800-906-9887

• Access EITC toolkits and resources online

http://www.nationalassembly.org/FSPC/BridgingTheGap/EarnedBenefits.aspx

http://eitcoutreach.org/

For more information about tax credit outreach or the Bridging the Gap Initiative please contact:

Hillary Lazar, Program Director – NHSA202-347-2080 x15 • Ph 202-393-4517 Fax

hlazar@nassembly.org

LEARN MORE!

POLL QUESTION:

How much do you know about the Earned Income Tax Credit?

A lot Some A little Nothing Unsure

POLL QUESTION:

How much can the Earned Income Tax Credit be in cash back?

More than $5000 Up to $5000 Up to $2500 Up to $1500 Don’t know

POLL QUESTION:

True or False: Children in immigrant families do not qualify for the Child Tax Credit.

True False Unsure

POLL QUESTION:

How much do you know about the Child Tax Credit?

A lot Some A little Nothing Unsure

POLL QUESTION:

Which of the following tax credits have you heard of?

The American Opportunity Tax Credit The HOPE Credit The Child and Dependent Care Credit The Making Work Pay Credit

POLL QUESTION:Why are you interested in promoting tax credits?

I’m a service provider and want to connect my clients My organization is hoping to get more involved with EITC outreach I’m an HR or employee relations specialist and want to connect my employees Times are tough and I have people in my life or community who I think may qualify Other Not sure (ie. my boss asked me to do it)

POLL QUESTION:

Have you heard of VITA sites?

Yes No Unsure

Pop Quiz!

1.Pop Quiz - Which of the following statements are true? The Earned Income Tax Credit and Additional Child Tax Credit are two of the major refundable credits out there. T

The Earned Income Tax Credit can be as much as $5666. T

A qualifying child for the Child Tax Credit is under 19 years old. F

The American Opportunity Tax Credit helps to cover college tuition and education expenses. T

VITA sites charge a small processing fee for tax prep. F

POLL QUESTION:

Will you try at least one outreach technique this tax season?

Yes No Maybe