Guest Blog for AAPD
March 24, 2009
Earned Income and
Other Tax Credits Can Help Individuals with Disabilities
Guest Column: Paul Gada
Welcome to another in a series of columns discussing timely
tax issues. With the April 15th tax filing deadline close at hand,
people can use all the help they can get to survive this tax season.
If you are looking for a real-world example of the principle
of “give and take,” look no further than our federal tax code. Our tax system
both takes and returns our tax dollars (through various credits, deductions and
exemptions) in a way that is seemingly designed only to confuse the average
taxpayer.
The good news is that there are a number of tax credits
available only to lower income or disabled taxpayers.
The Earned Income Tax Credit (EITC) is among the most
important and, potentially, one of the most under-used by eligible taxpayers.
It also was the subject of a reader’s question submitted through this blog.
If you or your spouse earned any taxable income for the
year, you may be eligible for this credit. The most appealing feature of the
EITC is that it is a refundable tax credit. This means that if your credit
amount is higher than your tax bill, you can actually get the unused part of
the credit back as part of a tax refund.
The EITC is part of a federal tax program designed to help
low-income workers and families by offsetting the burden of Social Security
taxes and providing an incentive to work. Even if you don’t earn enough to owe
federal income taxes, you may get a refund from the IRS if you qualify for the
EITC. If you qualify, it could be worth up to $4,824 for the 2008 tax year.
Even though it sounds too good to be true, it isn’t. In the 2007
tax year, approximately 24 million people received over $44 billion in earned
income credits by filing a federal income tax return. Unfortunately, the IRS
estimates that approximately one in four people who could have been eligible
failed to claim the EITC.
A main reason people fail to claim this important tax credit
is because they simply don’t know about it. Here’s your chance to learn more.
If you or your spouse were employed for at least part of
2008, you may be eligible for the EITC based on these general requirements:
|
2008 EITC
Eligibility |
|||
|
Maximum Earnings |
Qualifying Children |
Investment Income |
|
|
Single |
Married Filing
Jointly |
||
|
$12,880 |
$15,880 |
None |
Maximum $2,950 |
|
$33,995 |
$36,995 |
One |
Maximum $2,950 |
|
$38,646 |
$41,646 |
Two or more |
Maximum $2,950 |
The amount of the EITC itself depends on your income and
family size. For 2008, the maximum credit amounts are as follows:
|
2008 Maximum EITC
Amounts |
|
|
Number of
Qualifying Children |
Maximum Credit |
|
Two or more |
$4,824 |
|
One |
$2,917 |
|
None |
$438 |
Based on tables provided by the IRS, the maximum credit
amounts are phased in from the first dollar earned. The EITC phases out
completely when the earning levels listed earlier are reached.
When figuring out your EITC, benefits you receive under an
employer’s disability retirement plan (e.g., plans providing pensions to
workers who lose their jobs because of disability) are considered earned income
until you reach minimum retirement age. According to the IRS, minimum
retirement age is considered the earliest age at which you could have received
a pension if you were not disabled. The taxable disability payments you claim
on line 7 of either Form 1040 or Form 1040A count toward qualifying for the
EITC.
However, you should be aware that benefits such as Social
Security Disability Insurance (SSDI), Supplemental Security Income (SSI) or military
disability pensions are not considered
earned income that qualify for the EITC. The same is true for payments you
received from a disability insurance policy that you paid the premiums on. You
or your spouse must have earned income to qualify for the EITC.
There are several ways to determine EITC eligibility and the
actual amount of the credit. The hard way is to work through the worksheets and
tables provided in the instructions to IRS Forms 1040, 1040A or 1040EZ. An
easier way is to use the EITC Assistant tools (http://apps.irs.gov/app/eitc2008/SetLanguage.do?lang=en)
provided by the IRS that walk you through the entire process. If you elect to
do so on your tax return, the IRS can also figure out your EITC for you. If
none of these choices work for you, seeking professional tax help is highly
recommended because of the complexities involved.
Other tax breaks for
low-income taxpayers. Depending on your particular situation, there may be
many more tax breaks that can take the sting out of filing your taxes and even
help your financial situation in the end. Among these are:
- Recovery rebate credit. In addition to the recently announced $250
bonus payment, Social Security recipients who did not take the full
tax-rebate credit based on their 2007 income may still be able to do so
based on their 2008 income. Individuals with at least $3,000 in qualifying
income (from a job, SSDI, etc.) can take this credit. It is $300 for
single filers and $600 for married couples receiving just Social Security
or veterans-disability benefits. The rebate is more for people who have
earned income in addition to disability income. Anyone claiming a rebate may
be eligible for an extra $300 for each of their children under 17.
- Credit for the disabled. You are eligible for this credit if
you receive taxable disability income from a former employer’s accident,
health or pension plan—and have 2008 adjusted gross income under $17,500
for single filers; $20,000 for joint filers with only one spouse eligible
for the credit; and $25,000 for joint filers with both spouses eligible.
More detail on these and other credits are available on Allsup’s
Web site under Tax
Credits for Lower Income Taxpayers.
To take full advantage of these tax breaks, consider seeking
out professional tax assistance or tax preparation software that can help walk
you through filling out your tax return.
I welcome your questions on these or related tax topics. You
can post them here or reach me at p.gada@allsupinc.com.
Happy tax season!
~Paul
Gada is a tax attorney and the Personal Financial
Planning Director for Allsup
(www.allsup.com), a national provider of Social Security, Medicare and
financial services for those with disabilities.
Copyright,
Allsup Inc., used with permission.
time for a Tax Tea Party! Say NO to government taking money out of YOUR paycheck and giving it to others who didn't earn it.
the earned income tax credit is nothing more than a scam to get people to depend on the government to give them something for nothing.
just who do you think it is taken from?
Answer. Your neighbor who earned a few bucks more than you.
WAKE UP AMERICA! Get govt out of the way! HAve a tea party today!
Posted by: John Smith | April 15, 2009 at 11:20 PM