Question: As a day care provider, how can I use the Earned Income Credit to put some extra money in my clients' pockets?
Promote the Earned Income Credit (EIC) for you clients. The EIC is a special federal tax benefit for people who work full-or part-time and earn low or moderate incomes. Those who qualify owe less in taxes and may get cash back. Even those who don't owe income tax can get the credit. Many workers who qualify aren't getting the credit, either because they haven't heard about it, don't know they are eligible or don'tiknow how to apply. As a day care provider, you can play a crucial role in educating potential recipients. By mid-1994, about 15 million families had gotten the credit. In 1995, 4.5 million additional low-income workers were eligible for the credit for the first time.
Why do we have the EIC?
The EIC has several important purposes-to reduce the tax burden on low-and moderate-income workers, to supplement wages and to make work more attractive than welfare. It's intended as an incentive to work.
Who can get the EIC and how much is it worth?
Single or married people who worked full-or part-time at some point in 1995 can qualify for the EIC, depending on their income. Workers who were raising one child in their home and had a family income of less than $24, 396 in 1995 can get an EIC of up to $2,094. Workers who were raising more than one child in their home and had a fmaily income of less than $26, 673 in 1995 can get an EIC of up to $3,110. Workers who were not raising children in their home but were between the ages of 25 and 64 on December 31, 1995, and had an income below $9,230 can get an EIC of up to $314. All the dollar amounts are increased over 1994.
How can workers get the EIC?
Here's how it works. Eligible workers can get a check from the IRS refunding their withheld federal income tax and including eligible EIC dollars. Other workers, who do not owe federal income tax, can get a check for their EIC money. Some workers will have a reduction in taxes they owe over and above tax withheld. Workers can calculate their own EIC using the EIC Worksheet, or the IRS will do it for them.
In order to benefit, workers must file for the EIC. Workers raising children in 1995 must file either Form 1040 or 1040A and must fill out and attach Schedule EIC. This is the only combination which will work (reminder-do not use Form 1040EZ).
Workers who were not raising children in 1995 can file any tax form, including 1040EZ. They write "EIC" (or the dollar amount of their credit) on the Earned Income Credit line on the tax form. They do not file Schedule EIC.
Anything else I can do to help?
There are three more things you can do now to help your clients put some extra money in their pockets. First, encourage them to get free help in preparing their tax returns. Many workers who are eligible for the EIC may not feel comfortable filling out their tax forms themselves, and, in fact, estimates suggest that up to two-thirds of EIC recipients are paying someone to prepare their tax returns. VITA (Volunteer Income Tax Assistance Infomration) is a free IRS-sponsored program to help low-income workers fill out their tax forms. Call 1-800-829-1040 for information on numerous free tax preparation sites in your area. Be patient, as the lines are often busy.
Second, remind your clients that getting a quick turnaround on a tax refund is the most expensive way to file taxes. Paying for a quick refund takes money away from EIC or any other tax refund.
Third, be aware of the advance payment option, through which workers can get a portion of their EIC in each paycheck during the year. Use Form W-5, giving the lower part to the employer and keeping the top part with other tax records.
The EIC can make a real differnce in the lives of many low-income workers, as long as they know it's there and understand how to get it. Whether you put up a poster, pass out brochures or manage an informal education campaign, your work as a day care porvider can have an impact.