The University Record, March 18, 1997

Earned Income Credit can get you a refund

Employees with low to moderate incomes who have children or other dependents and are seeking ways to maximize their dollars at tax time can take advantage of two programs: Earned Income Credit (EIC) and credit for money spent on child or dependent care.

Earned Income Credit

The EIC, available to single or married people who worked at least part time in 1996, is designed to reduce the tax burden, supplement wages and make work more attractive than welfare.

Employees with a family income of less than $25,078 raising one child can get a credit of up to $2,152.

Those with an income of less than $28,495 raising more than one child can get a credit of up to $3,556.

Those ages 25-65 not raising children in their home with incomes below $9,500 can get a credit of up to $323.

Employees raising children in 1996 must file either Form 1040 or 1040A and must fill out and attach Schedule EIC. Married workers must file a joint return to get the credit.

Employees who were not raising children in 1996 can file any tax form and write "EIC" on the Earned Income Credit line at the form.

The credit is valuable because you can get money back even if you don't owe any taxes at the end of the year.

This year (1997), advance EIC payments are available to employees with at least one qualifying child and an expected 1997 income of less than $25,750. Those not raising children cannot get advance payment.

Using the advance payment option, eligible employees can get part of their EIC in their paychecks during the year (about one-half the amount for the year) and the rest from the IRS after they file a return.

Some employees should not choose the advance payment option---those who hold more than one job, have a working spouse, get married during the year or have a significant increase in income during the year.

Employees who want advance payment need only fill out a W-5 form called the "Earned Income Credit Advance Payment Certificate," available from their employer, and give the bottom portion to their employer.

The form may be filed at any time during the year, but employees must file a new one at the beginning of each year to continue getting the EIC in paychecks.

Child and Dependent Care Credit

In general, the dependent care credit can be taken for any person, such as a child or aging parent, claimed as a dependent on your federal tax return for whom care was required in order for you to work.

Any kind of child or dependent care can qualify: care at a center, family day care home or church, or care provided by a relative (except if provided by a spouse, dependent or child under age 19).

However, if a family receives free child care, such as from a state-subsidized program, that care cannot be used to qualify for the credit.

The size of the credit depends on the number of children or dependents, income and the amount paid for care. It can be as much as $720 for families with one child or dependent, and $1,440 for those with more than one child or dependent.

Only a limited amount of the dependent care expenses can be claimed. Families with one child or dependent can claim up to $2,400, those with more than one up to $4,800. Eligible families receive credits of 20-30 percent of these expenses, depending on income.

To get the dependent care credit, families must file either Form 1040 or 1040A and attach a separate form with their return: Form 2441 with Form 1040; Schedule 2 with Form 1040A.

For general information on the EIC and forms for EIC and dependent care, contact the Family Care Resource Program, 715 N. University, 998-6133. For W-5 forms for advance payment of the EIC, contact the Payroll Office, 764-8253.

How the EIC works

Eligible workers pay less in taxes: Ms. Johnson has two children, earned $25,000 in 1996 and owes $800 in taxes. Her income, however, makes her eligible for an EIC of $731, reducing the taxes she owes to $69.

Eligible workers can get a check equal to or greater than their withholding amount: Ms. Berger has three children and earned $17,000 in 1996. Her federal income tax for the year was $137, all of which was withheld from her pay. She is eligible for an EIC of $2,416. The EIC pays back the $137 and she gets an additional cash refund of $2,279.

Eligible workers who don't owe federal income tax can get a check: Mr. Smith has no children. He worked part time in 1996 and earned $4,900, had no income tax deducted from his pay and owes no taxes. He is entitled to an EIC check for $323.