March is the middle of tax season and a perfect time to talk about how you might qualify to receive money, plan for the future and save for education – all by filing your tax return. It’s true; the mission of the Internal Revenue Service (IRS) is to collect taxes to fund the U.S. budget. But the IRS is also responsible for administering the Earned Income Tax Credit or EITC, the largest anti-poverty program in the country. According to the IRS, the taxpayers who most frequently overlook claiming their EITC benefits include rural and non-traditional families (such as grandparents raising grandchildren), childless workers and non-English speaking taxpayers. You may qualify for the EITC even if you have not had any federal tax withholding or even if you are not otherwise required to file a tax return. You may be eligible to receive as much as $5,666 under the EITC program-but you have to file a tax return to claim and receive the benefit. The first thing to do is to determine whether you are eligible to receive the EITC refund. To qualify for an EITC payment, you must have earned wages or self-employment income, and a valid Social Security number. If you are claiming the EITC with a child or children then the following rules also apply for each child claimed under the program: -The child must have a valid Social Security number -The child must be no older than 19 (or no older than 24 if a full-time student) (or any age if permanently and totally disabled); -The child must live with you for more than one-half of the year; and -The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister; or any descendant of any of the foregoing, such as, grandchild, niece, nephew, great niece, great nephew, etc. The amount of the EITC increases with the amount of your income until it peaks for a certain range of income, and it then reduces or phases out for higher levels of income, depending on your filing status and other factors. For example, if you have three children and are married filing jointly, the credit increases to a maximum $5,666 if your earned income is between $12,500 and $21,500, and then gradually drops off if your earned income is greater than $21,500, until the benefit is reduced to zero for earned income of $48,362 or higher. An “EITC Assistant” is available online at www.irs.gov/etic to help you determine your eligibility and estimate the amount of your EITC credit. In addition, there are a number of free volunteer income tax assistance sites and IRS Taxpayer Assistance Centers that can help you prepare your tax return and claim your EITC benefits. To locate a volunteer site call your community’s 211 or 311 number for local services, or call the IRS at 1-800-906-9887.
Receiving a large refund? Buy a Savings Bond If you claim for EITC, are eligible and due a large refund, you might consider buying U.S. Series 1 Savings Bonds with up to $5,000 of your tax refund. Series 1 bonds are low-risk bonds that protect you from inflation by growing in value by the amount of inflation, for up to 30 years. If you redeem the bonds within the first five years after you purchase them, you forfeit the most recent three months of interest: after five years, there is no penalty. You can register the bonds in your name or you can designate a beneficiary. The bonds are now paying interest at the current inflation rate of .74% per annum. The interest is added to the principal amount of the bond each month, but is not treated as taxable income until the year that you cash out the bond; however, the interest may be excluded from taxable income altogether if the proceeds from the bond are used to finance education. To purchase savings bonds with your tax refund, file Form 8888 Allocation of Refund (Including Savings Bonds Purchases) with your tax return and select this option by completing Part II of the Form 8888 (U.S. Series I Savings Bond Purchases). By Mary Ann David, Esq., Legal Services of Greater Miami, Inc.