There’s a new California tax credit for working families? It’s called the
California Earned Income Tax Credit (CalEITC)
and it’s modeled after a federal tax credit that also gives back money to working families.
IRS Publication 5334, Do I Qualify for EITC?
With the combined federal and state earned income tax credits, some families can get up to $6,000. That’s money they can use for housing, utilities, groceries, and insurance premiums!
The California 2015-16 Budget included the state’s first-ever California Earned Income Tax Credit (EITC), that puts money back in the pockets of working Californians.
The new state EITC and the existing federal EITC are available to many California working families with incomes up to $53,267 (federal) and $13,870 (state). Eligibility depends on income and family size
Grandparents Caring for Grandchildren Should Check Their Eligibility for EITC
Grandparents who work and are also raising grandchildren might benefit from the earned income tax credit. The IRS encourages these grandparents to find out, not guess, if they qualify for this credit. This is important because grandparents who care for children are often not aware that they could claim these children for the EITC.
The EITC is a refundable tax credit. This means that those who qualify and claim the credit could pay less federal tax, pay no tax, or even get a tax refund. Grandparents who are the primary caretakers of their grandchildren should remember these facts about the credit:
- A grandparent who is working and has a grandchild living with them may qualify for the EITC, even if the grandparent is 65 years of age or older.
- Generally, to be a qualified child for EITC purposes, the grandchild must meet the dependency and qualifying child requirements for EITC.
- The rules for grandparents claiming the EITC are the same for parents claiming the EITC.
- Special rules and restrictions apply if the child’s parents or other family members also qualify for the EITC.
- There are also special rules for individuals receiving disability benefits and members of the military.
- To qualify for the EITC, the grandparent must have earned income either from a job or self-employment and meet basic rules.
- The IRS recommends using the EITC Assistant, available in English or Spanish, on IRS.gov, to determine eligibility and estimate the amount of credit.
- Eligible grandparents must file a tax return, even if they don’t owe any tax or aren’t required to file.
Qualified taxpayers should consider filing electronically. It’s the fastest and most secure way to file a tax return and get a refund.
By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.
Publication 596, available on IRS.gov.
The Earned Income Tax Credit: Often Missed
The Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break for 40 years. Yet, one out of every five eligible workers fails to claim it. Here are some things you should know about this valuable credit:
- Review Your Eligibility. If you worked and earned under $53,267, you may qualify for EITC. If your income or family situation has changed, you should review the EITC eligibility rules. You might qualify for EITC this year even if you didn’t in the past. If you qualify for EITC you must file a federal income tax return and claim the credit to get it. This is true even if you are not otherwise required to file a tax return. Don’t guess about your EITC eligibility. Use the EITC Assistant tool on IRS.gov. The tool can help you find out if you qualify for the credit. It can also estimate the amount of your EITC.
- Know the Rules. You need to understand the rules before you claim the EITC, to be sure you qualify. It’s important that you get this right. Here are some factors you should consider:
o If you are married and file a separate return you do not qualify for EITC.
o You must have a Social Security number that is valid for employment for yourself, your spouse, if married, and any qualifying child listed on your tax return.
o You must have earned income. Earned income includes earnings from working for someone else or working for yourself.
o You may be married or single, with or without children to qualify. If you don’t have children, you must also meet age, residency and dependency rules. If you have a child who lived with you for more than six months of 2015, the child must meet age, residency, relationship and the joint return rules to qualify.
o If you are a member of the U.S. Armed Forces serving in a combat zone, special rules apply.
- Lower Your Tax or Get a Refund. If you qualify for EITC, you could pay less federal tax, no tax or even get a refund. EITC could be worth up to $6,242. The average credit was $2,447 last year.
- Use Free Services. If you do your own taxes, the best way to file your return to claim EITC is to use IRS Free File. Free brand-name software will figure your taxes and EITC for you. Combining e-file with direct deposit is the fastest and safest way to get your refund. Free File is only available on IRS.gov/freefile. You can also get free help preparing and e-filing your return to claim your EITC. The IRS Volunteer Income Tax Assistance, or VITA, program offers free help at thousands of sites around the country. You can also get help with the health care law tax provisions with Free File or VITA.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
Additional IRS Resources:
WASHINGTON — The Internal Revenue Service joins partners across the country in promoting the Earned Income Tax Credit on EITC Awareness Day, Friday, January 29, 2016. This is the 10th anniversary of the EITC Awareness Day campaign, a nationwide effort to alert millions of low and moderate-income workers who may be missing out on this significant tax credit.
Millions of taxpayers who earned $53,267 or less last year may qualify for EITC for the first time in 2016, making awareness critical. Local officials and community organizations nationwide are holding events on EITC Awareness Day highlighting this key benefit.
“One-third of the population eligible for EITC changes each year as their personal circumstances change,” said IRS Commissioner John Koskinen. “We want workers who may qualify for EITC for the first time to have all the information they need to get the EITC and get it right. This is an important credit for hard-working Americans, and one of the government’s best tools to fight poverty.”
Last year, more than 27.5 million eligible workers and families received almost $66.7 billion in EITC; with an average EITC amount of more than $2,400.
IRS.gov is a valuable first stop to help taxpayers get it right this filing season, from information on claiming the EITC, to learning about the Affordable Care Act (known as the health care law), to finding free tax help and preparation for qualified taxpayers. The IRS encourages everyone to use the EITC Assistant, an interactive tool on IRS.gov/eitc, to find out if they are eligible for the credit. The IRS website also provides helpful information on the health care law and how it may affect tax returns at IRS.gov/aca.
Workers, self-employed people and farmers who earned $53,267 or less last year could receive larger refunds if they qualify for the EITC. Eligible families with three or more qualifying children could get a maximum credit of up to $6,242. EITC for people without children could mean up to $503 added to their tax refund. Unlike most deductions and credits, the EITC is refundable. In other words, those eligible may get a refund from the IRS even if they owe no tax.
The IRS reminds taxpayers to be sure they have valid Social Security numbers in hand for themselves, as well as each qualifying child, before they file their return. Moreover, to get the EITC on a 2015 return, they must get these SSNs before the tax-filing deadline (April 18, 2016 for most people or Oct. 17, 2016 for those who get extensions).
Workers potentially eligible to claim the credit should visit IRS.gov/eitc to learn if they qualify and how to claim the credit. The IRS recommends that all workers who earned around $54,000 or less use the EITC Assistant to determine their filing status, if they have a qualifying child or children, if they qualify to receive the EITC and estimate the amount of the EITC they could get. If an individual doesn’t qualify for EITC, the Assistant explains why. A summary of the results can be printed and kept with the worker’s tax papers.
The IRS also reminds taxpayers about the availability of myRA, a new, free, retirement savings account from the Treasury Department. Taxpayers who have a myRA account may use Free File to deposit their tax refund or a portion of their refund into their myRA account. They just need to use Form 8888 or follow their software product’s instructions.
Get the Credit: How to Claim the EITC
To get the EITC, workers must file a tax return, even if they are not required to file, and specifically claim the credit. Free tax help is available. Those eligible for the EITC have these options:
- Free File on IRS.gov Free brand-name tax software walks people through a question and answer format to help them prepare their returns and claim every credit and deduction for which they are eligible. Free File also provides online versions of IRS paper forms, an option called Free File Fillable Forms which is best suited for taxpayers comfortable preparing their own returns.
- Free tax preparation sites EITC-eligible workers can seek free tax preparation at thousands of Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites. Taxpayers can locate the nearest site using a search tool on IRS.gov or through the IRS2go smartphone application.
It is important for taxpayers to bring along all the required documents and information to make sure they get the EITC they deserve.
The IRS issues more than 9 out of 10 refunds in less than 21 days. However, it’s possible a tax return may require additional review and take longer. Taxpayers can track the status of their refund with the “Where’s My Refund?” tool available on IRS.gov or on IRS2go.This online tool has the most up to date information available about a refund.
Get It Right: Avoid Errors
Taxpayers are responsible for the accuracy of their tax return even if someone else prepares it for them. The rules for EITC are complicated. The IRS urges taxpayers to seek help if they are not sure they are eligible either from a paid tax professional or at a free tax return preparation site. Deliberate errors can have lasting impact on future eligibility to claim EITC and leave taxpayers with a penalty.
Taxpayers should reply promptly to any letter from the IRS requesting additional information about EITC. If taxpayers need assistance or have questions, they should call the number on the IRS letter.
Beware of Scams
EITC provides a financial boost for millions of hard-working Americans. However, a deliberate error can have lasting impact on future eligibility to claim EITC. Beware of scams that claim to increase the EITC refund. Scams that create fictitious qualifying children or inflate income levels to get the maximum EITC could leave taxpayers with a penalty.
If an EITC claim was reduced or denied after tax year 1996 for any reason other than a mathematical or clerical error, taxpayers must file Form 8862, Information to Claim Earned Income Credit after Disallowance, with their next return to claim the credit.
Qualify for EITC? See what other tax credits are available.
- IRS.gov/eitc – Detailed EITC eligibility rules
- EITC Central at www.eitc.irs.gov – Helpful resources for IRS partners and anyone interested in spreading the word about this benefit.
- Pub. 596 – Earned Income Credit (EIC)
- Tax Professionals – Another place for valuable EITC resources and assistance. IRS Email dated 1.29.2016 8:22 PM
WASHINGTON – The Internal Revenue Service wants taxpayers with disabilities and parents of children with disabilities to be aware of the Earned Income Tax Credit (EITC) and correctly claim it if they qualify.
The EITC is a federal income tax credit for workers who don’t earn a high income ($53,505 or less for 2016) and meet other eligibility requirements. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.
The EITC could put an extra $2 or up to $6,269 into a taxpayer’s pocket. Nevertheless, the IRS estimates that as many as 1.5 million people with disabilities miss out on this valuable credit because they fail to file a tax return. Many of these non-filers fall below the income threshold requiring them to file. Even so, the IRS urges them to consider filing anyway because the only way to receive this credit is to file a return and claim EITC.
To qualify for EITC, the taxpayer must have earned income. Usually, this means income either from a job or from self-employment. But taxpayers who retired on disability can also count as earned income any taxable benefits they receive under an employer’s disability retirement plan. These benefits remain earned income until the disability retiree reaches minimum retirement age. The IRS emphasized that social Security benefits or Social Security Disability Income (SSDI) do not count as earned income.
Additionally, taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements. Use the EITC Assistant, on IRS.gov, to determine eligibility, estimate the amount of credit and more.
People with disabilities are often concerned that a tax refund will impact their eligibility for one or more public benefits, including Social Security disability benefits, Medicaid, and Food Stamps. The law is clear that tax refunds, including refunds from tax credits such as the EITC, are not counted as income for purposes of determining eligibility for benefits. This applies to any federal program and any state or local program financed with federal funds.
Many EITC filers will receive their refunds later this year than in past years. That’s because a new law requires the IRS to hold refunds claiming the EITC and the Additional Child Tax Credit (ACTC) until mid-February. The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27. Taxpayers claiming the EITC or ACTC should file as soon as they have all of the necessary documentation together to prepare an accurate return. In other words, file as they normally would.
The IRS and partners nationwide will hold the annual EITC Awareness Day on Friday, Jan. 27, 2017 to alert millions of workers who may be missing out on this significant tax credit and other refundable credits. One easy way to support this outreach effort is by participating on the IRS Thunderclap to help promote #EITCAwarenessDay through social media. For more information on EITC and other refundable credits, visit the EITC page on IRS.gov.
- Publication 3966, Living and Working with Disabilities
- Publication 907, Tax Highlights for Persons with Disabilities
Links & Resources
Income Chart – Eligibility for CalEITC California Earned Income Tax Credit
What counts as Income?
Gains & Losses
Adjustments to Income?
How to figure your tax?
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