Transcript Tax Credits for Working Families

Tax Credits for Working
Families
Tax Year 2005
Types of Credits
• Refundable Credits – Taxpayer receives
full amount of credit they are entitled to,
whether or not they have tax liability.
• Non-refundable Credits – Taxpayer
receives maximum amount of credit
allowed or a credit equal to their tax
liability whichever is less.
Earned Income Credit
• Refundable Credit for working taxpayers with Earned
Income and Adjusted Gross Income (AGI) of less than:
– $35,263 ($37,263 married filing jointly) with 2 or more qualifying
children
– $31,030 ($33,030 married filing jointly) with one qualifying child,
or,
– $11,750 ($13,750 married filing jointly) with no qualifying children
• Maximum Credit (for tax year 2005) for
– 2 or more qualifying children $4,400
– 1 qualifying child $2,662
– No children $399
Earned Income Credit
Qualifications
• Taxpayer must have earned income (income from work)
• Investment income (interest, dividend income) must be
less than $2,700 or less for the year
• Taxpayer, spouse and all qualifying children must have
SSN (ITIN holders do not qualify)
• Taxpayer, spouse and all qualifying children must be
U.S. resident or resident alien for entire year
• Filing status cannot be Married Filing Separately
• Taxpayer, spouse and qualifying children cannot be the
qualifying child of another taxpayer
Child Tax Credits
• Partially refundable, partially non-refundable.
• Maximum credit is $1,000 per qualifying child for tax year
2005.
• For all taxpayers with adjusted gross incomes of less than
$55,000 (may be higher based on filing status)
• Qualifying child must
– be under the age of 17 on Dec. 31, 2005
– be a U.S. Citizen, national, or resident
– have lived with the taxpayer more than half of 2005 (183
days)
– not have provided more than half of their own support
• Special rules for divorced or separated parents
Child and Dependent Care
Expense Credit
• Non-refundable credit
• Most commonly used credit in U.S.
• Credit limited to the lesser of the lower
paid spouse’s earned income (or
taxpayer’s earned income if unmarried),
the actual expense paid, or $3,000 for one
qualifying child or $6,000 for 2 or more
qualifying children
Child and Dependent Care
Expense Credit Qualifications
• Person being cared for must be
– the taxpayer’s dependent child who is
• a U.S. citizen, national or resident,
• under the age of 13 when care was provided (or any age if
physically/mentally incapable of self-care),
• who did not provide more than half their own support during
the year, and
• who lived with the taxpayer more than half of 2005
or
– the taxpayer’s dependent or spouse who is not
physically or mentally capable of self-care
Child and Dependent Care
Expense Credit Qualifications
• Credit is for expenses paid for care so taxpayer
could work or look for work
• Taxpayer must identify the care giver and
provide the care giver’s SSN (or EIN, if a
business) in order to claim the credit
• Special rules for grandparents and siblings who
are paid to care for dependents (generally not
allowed)
• Special rules for divorced or separated parents
• Credit phases out at high income levels
Education Credits
• Two types – both non-refundable
• Credit for qualified education expenses incurred
• Hope Scholarship Credit – Maximum credit
$1,500 per student for first 2 years postsecondary education
• Lifetime Learning Credit – Maximum credit
$2,000 per return, regardless of the number of
students on the return
• Credit phases out at high income levels
General Education Credit
Qualifications
• Qualified student – Can be taxpayer, spouse, or
any dependent
• Qualified expenses – Generally all that are
actually incurred except for books not required
by the school, insurance, medical expenses and
room and board
• Can receive credit for expenses paid with
student loans, as long as loan must eventually
be repaid
• Filing status cannot be married filing separately
Hope Education Credit
Qualifications
• Student must be enrolled at least half-time
• Student must be enrolled in first 2 years of
post-secondary program
• Student must be enrolled in a degreeseeking or professional certification
program
• Student cannot have been convicted of a
felony possession or distribution drug
charge
Lifetime Learning Education Credit
Qualifications
• No requirement that student be enrolled
half-time
• Student must be enrolled in a postsecondary degree program or taking
courses to improve or acquire job skills
• No requirement that student not have
been convicted of a felony possession or
distribution drug charge
Tax Questions?
Campaign Questions?
Pam Chaney
Operations Director
410.792.0018
[email protected]
Joanna Ramani
Campaign Director
410.539.6800
[email protected]