ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, March 18, 1996 TAG: 9603190001
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: Changes in the tax law
SOURCE: Dave Skidmore/Associated Press
More money is available for the working poor than ever before under the 20-year-old earned income tax-credit program. Republican legislation - vetoed by President Clinton - would have trimmed the program's growth. But at least for now, the credit is in the second year of an expansion initiated by the 1993 budget bill.
An estimated 20 million households will receive $25.5 billion on their 1995 returns, up from $20.8 billion in 1994 and $15 billion in 1993.
THE MAXIMUM CREDIT for families with children has risen to $2,094 for one child and $3,110 for two or more children. That's up from $2,038 and $2,528, respectively, the previous year and $1,434 and $1,511 in 1993. For people without children, the credit is $314, up from $306 in 1994 and zero the year before that.
Even if your tax liability is less than the maximum credit for which you qualify, the government will send a check for the difference.
The amount you can earn and still be eligible also has increased. With no children, the maximum credit is reached when income hits $4,100 and starts declining when income reaches $5,150, hitting zero at income of $9,230.
With one child, the maximum credit is reached when income hits $6,150 and starts declining when income reaches $11,300, hitting zero at income of $24,396.
With two or more children, the maximum credit is reached when income hits $8,600 and starts declining when income reaches 11,300, hitting zero at income of $26,673.
Any credit you receive won't be used in determining your eligibility for Aid to Families with Dependent Children, Medicaid, Supplemental Security Income, food stamps and low-income housing.
Your tax return's instruction booklet has a series of questions to determine if you're eligible, plus a worksheet for determining the amount of the credit. Publication 596 has the rules in detail, but here are the basics:
First, you must put down a Social Security number for every person on your return who was born before Nov. 1, 1995. That's stricter than the previous year, when numbers were required only for children age 1 or older.
Make sure you use correct Social Security numbers. This is important. In an anti-fraud crackdown last year, 7 million taxpayers had their refunds delayed for up to eight weeks - 3 million of them because of Social Security number discrepancies.
If you need to get a number, apply by filing Form SS-5 with the Social Security Administration. It takes about two weeks.
Another rule that's new for 1995 returns: People who are nonresident aliens during any period in 1995 cannot claim the credit unless they are married to a U.S. citizen and choose to be treated as a resident alien.
But military personnel on extended active duty outside the United States - those ordered outside the country for more than 90 days or for an indefinite period - now are eligible for the credit.
Starting with the 1996 tax returns, to be filled out next year, people with investment income of more than $2,350 won't be eligible.
Those without children can take the credit on forms 1040EZ, 1040A and 1040. You must be at least 25 years old but younger than 65. If you're married, either you or your spouse must be between those ages. You can't be a dependent on someone else's return.
If you have a child, you can't use Form 1040EZ. Attach Schedule EIC to your return, either Form 1040A or Form 1040.
To qualify, your child must be younger than 19 at the end of the year, younger than 24 and a full-time student, or any age and permanently and totally disabled. The child must be your own son or daughter, an adopted child, grandchild or stepchild and must have lived with you in the United States for at least half the year. Foster children qualify if they lived with you all year.
People who are married but file separate returns can't take the credit. Also, only one person can claim the credit when an unmarried couple live together with a qualifying child. The person with the highest adjusted gross income is the one allowed to claim the credit.
Here's how to calculate your income for the purpose of determining the amount of your credit.
Add any taxable earned income such as wages and tips to nontaxable earned income such as contributions to a 401(k) savings plan, a military housing allowance and child-care benefits provided by your employer. Subtract any taxable scholarship or fellowship grant not reported on Form W-2.
Take your adjusted gross income from line 31 of Form 1040, line 16 of Form 1040A or line 4 of Form 1040EZ.
If Step 2 is less than $5,150 and you have no qualifying child, or less than $11,300 and you have at least one qualifying child, then use the total in Step 1 to find your credit in the table in your instruction booklet.
If Step 2 is $5,150 or more with no child, or $11,300 or more with a child, then look up the credit in the table for the amounts found in Step 1 and Step 2. The smaller figure is your credit.
The Internal Revenue Service is promoting an advance payment feature that allows people with children to receive a part of their earned income credit every time they get paid instead of waiting until the end of the year. File a Form W-5 with your employer.
If you received advance payments in 1995, you must report them on line 52 of Form 1040 or line 26 of Form 1040A.
You'll need to fill out Schedule 3 if you use Form 1040A or Schedule R if you use Form 1040. See Publication 524 for more information.
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