More than 1 in 5 children (22%) nationwide live in families with incomes below $22,000/year, and 1 in 10 children live in families with incomes of $11,000 a year or less. Did you know that for many low and moderate income families there are several tax credits that many do not take advantage of when filing their taxes? The Child Tax Credit is one.
The Child Tax Credit (CTC) is a partially-refundable tax credit designed to help those families with the cost of raising those children, helping reduce the hardship and expand opportunities for those children. Like the Earned Income Tax Credit, the CTC is also designed to incentivize work.
The CTC is the largest tax code provision benefiting families with children. By reducing the income tax liability of low-income families with children, and offering a refund of up to $1,000/child to some families, this credit helps offset the cost of raising children. It is estimated that a $1,000 increase in family income helps increase child math scores by 2 percent and reading scores by 3.5 percent. We also know this credit goes right towards bettering the lives of children. Data shows that low-income families spend a larger share of their pre-tax income directly on their children than those with higher incomes (25 percent v.16 percent for middle class families and 12 percent for wealthy families).
The Earned Income Tax Credit (EITC) is another. Here is information from the Center on Budget and Policy Priorities about the EITC.
The Earned Income Tax Credit (EITC) is a federal tax credit for low- and moderate-income working people. It is designed to encourage and reward work as well as offset federal payroll and income taxes. The EITC is “refundable,” which means that if it exceeds a low-wage worker’s income tax liability, the IRS will refund the balance.
Single or married people who worked full-time or part-time at some point in 2013 can qualify for the EIC, depending on their income.
- Workers who were raising one child in their home and had income of less than $37, 870 (or $43, 210 for married workers) in 2013 can get an EIC of up to $3,250.
- Workers who were raising two children in their home and had income of less than $43, 038 (or $48,378 for married workers) in 2013 can get an EIC of up to $5,372.
- Workers who were raising three or more children in their home and had income of less than $46, 227 (or $51,567 for married workers) in 2013 can get an EIC of up to $6,044.
The EITC is designed to encourage and reward work. Beginning with the first dollar, a worker’s EITC grows with each additional dollar of earnings until the credit reaches the maximum value. This creates an incentive for people to leave welfare for work and for low-wage workers to increase their work hours.
This incentive feature has made the EITC highly successful. Studies have shown, for example, that the EITC — especially in the presence of a strong labor market — has encouraged large numbers of single parents to leave welfare for work. The Committee for Economic Development, an organization of 250 corporate executives and university presidents, concluded in 2000 that “The EITC has become a powerful force in dramatically raising the employment of low-income women in recent years.”
Next to Social Security, the EITC combined with the refundable portion of the Child Tax Credit constitutes the nation’s most powerful anti-poverty program. These two credits lifted 10.1 million people out of poverty in 2012, including 5.3 million children
The EITC reduces poverty by supplementing the earnings of workers with low wages and low earnings. There has been broad bipartisan agreement that a two-parent family with two children with a full-time, minimum-wage worker should not have to raise its children in poverty. At the federal minimum wage’s current level, such a family can move above the poverty line for an average family of four only if it receives the EITC as well as SNAP (food stamp) benefits.
For young children, moving out of poverty is particularly important. Research has found that lifting income in early childhood not only tends to improve a child’s immediate educational outcomes, but also is associated with more schooling, more hours worked, and higher earnings in adulthood. One such study showed a link between an increase in the EITC for families with more than two children and an increase in achievement in middle childhood for children in these families.
Growing Up Granite
This year many New Hampshire workers will qualify for the Earned Income Tax Credit (EITC) for the first time because their income declined or they became unemployed; tax refunds through the EITC and Child Tax Credit can help low- and moderate-income families cover day-to-day expenses such as utilities, rent, and child care.
EITC and the Child Tax Credit are not considered as income in
determining your eligibility for benefits like TANF, food stamps, and Medicaid.
The number of New Hampshire families that claimed the EITC in 2013, (for tax year 2012), were 78,000. The average EITC dollar amount was $1,882.
The total EITC dollar amount that NH families received was $147 million. The IRS estimates, however, that one in five of eligible people could miss out on the EITC because they don’t know about it, don’t know that they qualify, or don’t know where to find free tax filing assistance.
Yes you read that correctly. Free tax filing assistance is available for some families and individuals in New Hampshire. Below you will find several ways to get help filing your tax return:
Visit a local Volunteer Income Tax Assistance (VITA) site, The Vita Program offers free tax help to low- to moderate-income ($51,000 and below) people who cannot prepare their own tax returns.
Visit a local American Association of Retired Persons (AARP) tax preparation site. The IRS certifies volunteers to provide free tax help through the Tax-Aide Program.
The majority of the VITA and TCE sites are open annually from late January/early February to April 15. During this time, you can locate a site near you using the above locator tools.
To have your tax return(s) prepared at a VITA or TCE site you need to bring the following information with you:
- Proof of identification – Picture ID
- Social Security Cards for you, your spouse and dependents or a Social Security Number verification letter issued by the Social Security Administration or
- Individual Taxpayer Identification Number (ITIN) assignment letter for you, your spouse and dependents
- Proof of foreign status, if applying for an ITIN
- Birth dates for you, your spouse and dependents on the tax return
- Wage and earning statement(s) Form W-2, W-2G, 1099-R, 1099-Misc from all employers
- Interest and dividend statements from banks (Forms 1099)
- A copy of last year’s federal and state returns if available
- Proof of bank account routing numbers and account numbers for Direct Deposit, such as a blank check
- Total paid for daycare provider and the daycare provider’s tax identifying number (the provider’s Social Security Number or the provider’s business Employer Identification Number) if appropriate
- To file taxes electronically on a married-filing-joint tax return, both spouses must be present to sign the required forms.
You could do your taxes yourself, by going online to The Internal Revenue Service web site www.irs.gov.