Representatives of the U.S. Internal Revenue Service reminded taxpayers that changes in the Earned Income Tax Credit (EITC) law will expand the number of low-income working taxpayers, especially military personnel, who qualify for tax relief.
According to an IRS spokesman, 71,292 Hawai’i taxpayers claimed the EITC for tax year 2001, and received $101,489,209 in earned income tax credit.
Both the income limits and the maximum credit have increased for the 2002 tax year, via automatic cost-of-living calculations.
The spokesman urged taxpayers to review EITC requirements to determine eligibility.
February marks the month in which a peak number of EITC claims are filed. The IRS is working to provide help in several ways:
- Tax assistance sites operated by volunteers will begin opening in February (please see related story for Kaua’i sites);
- Taxpayers can visit IRS.gov to see if they qualify for free Internet tax preparation and electronic filing through IRS Free File.
“More hard-working Americans can receive tax relief or even a tax refund because of changes in this (EITC) credit,” said Bob Wenzel, acting IRS commissioner.
“We want all those who are eligible, but only those who are eligible, to apply,” he said.
“The IRS and its network of volunteers are ready to help taxpayers complete accurate returns on this complex issue.”
For a complete list of EITC requirements, taxpayers should review Publication 596, which is available on IRS.gov, or by calling toll-free 1-800-TAX-FORM (1-800-829-3676).
Publication 596 contains a worksheet that helps taxpayers determine their eligibility. Also, taxpayers can use IRS.gov (www.irs.gov/eitc) to answer questions and determine eligibility.
To be eligible for a full or partial credit, a taxpayer must have an adjusted gross income of less than:
- $33,178 ($34,178 if married filing jointly) and two or more qualifying children;
- $29,202 ($30,202 MFJ) and one qualifying child;
- $11,060 ($12,060 MFJ) with no children.
The maximum earned income credit is $4,140 for families with two or more qualifying children, $2,506 for families with one qualifying child, and $376 for an individual without children.
Among the significant changes for the 2002 tax year was a redefinition of what constitutes earned income. Now, earned income no longer includes nontaxable income such as military pay for housing, subsistence allowances or combat pay.
The change will expand the number of military personnel who may be eligible for the credit. Also benefiting are people who participate in salary deferral plans such as 401(k) and Thrift Savings, or people who receive employer-provided benefits such as dependent-care benefits.
Other significant changes include:
- Income calculations will be based on adjusted gross income, not modified adjusted gross income;
- Eligible foster children must live with a guardian more than half a year, reduced from a one-year rule;
- For MFJ taxpayers, the maximum adjusted gross income limit is $1,000 more than other filing statuses;
- EITC is no longer reduced by the amount of any alternative minimum tax.
Under the new “tie-breaker” rule, if two people have the same qualifying child, they can choose which person will use the child to claim EITC. However, if both claim the credit using the same child, the child will be treated as the qualifying child of only one person.
Under the tie-breaker rule, the child can be treated as a qualifying child only by:
- The parent, if one person is the child’s parent;
- The person with the highest adjusted gross income, if neither person is the child’s parent;
- If both persons are parents of the child and they do not file a joint return together, the parent with whom the child lived the longest during the tax year;
- If both persons are parents of the child, they do not file a joint return together, and the child lived with both for the same length of time during the tax year, the parent with the highest adjusted gross income.
If a person and his or her spouse are the parents and file jointly, these rules do not apply.
Free tax help is available from many sources, such as the Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs.
The IRS is working with national organizations and community coalitions across the nation. These local partnerships will help ensure working families and individuals become aware of the tax credit and learn how to apply, Wenzel continued.
In 2002, there were 5,200 VITA sites nationwide, located in shopping centers, libraries, universities, churches or community centers. VITA volunteers assisted more than 1.7 million taxpayers.
The peak period coincides with the receipt of W-2 income statement forms from employers.
People who want to prepare their own tax returns should see Free File at IRS.gov.
Many low-income individuals may qualify for online tax preparation and electronic filing for free as part of an IRS partnership with private-sector software firms.
Individuals are under no obligation to purchase any products in return for the free services.