ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Monday, February 24, 1997 TAG: 9702250135
SECTION: MONEY PAGE: 6 EDITION: METRO
DATELINE: WASHINGTON
SERIES: tax season
The earned income tax credit for the working poor is worth more than ever with the completion of a three-year expansion initiated by President Clinton's 1993 budget.
The maximum credit now is $3,556 for families with two or more children in 1996, up from $3,110 last year and more than double the $1,511 maximum before the expansion.
The maximum for families with one child is $2,152, up from $2,094 last year and $1,434 three years earlier. For childless people, the credit is $323, up from $314 last year and zero three years ago.
Republicans, who fought unsuccessfully to cut the program, point out that it's more than a tax credit. For many, it's a government income supplement. Even if your credit exceeds your tax liability, you still get it.
With inflation, the amount you can earn and still be eligible has increased for 1996. With no children, the maximum credit is reached when income hits $4,200 and starts declining when income reaches $5,300, hitting zero at income of $9,500.
With one child, the maximum credit is reached when income hits $6,300 and starts declining when income reaches $11,650, hitting zero at income of $25,078.
With two or more children, the maximum credit is reached when income hits $8,850 and starts declining when income reaches $11,650, hitting zero at income of $28,495.
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 instructions booklet has a series of questions to determine if you're eligible, plus a worksheet for determining the credit. Publication 596 has the rules in detail, but these are the basics:
In a change for 1996 returns, people with investment income of more than $2,200 won't be eligible. Generally, that's the total of dividends and interest, both taxable and tax-exempt.
People who were nonresident aliens any part of 1996 also can't claim the credit, unless they are married to a U.S. citizen and choose to be treated as a resident alien.
Also, remember to put down a correct Social Security number for every person on your return - yourself, spouse and dependents - born before December 1996. This is important. The IRS will deny the credit if you don't. If you need to get a number, apply by filing Form SS-5 with the Social Security Administration. It takes about two weeks.
Childless filers 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, 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 lives together with a qualifying child. The person with the highest adjusted gross income is the one allowed to claim the 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 1996, you must report them on line 49 of Form 1040 or line 26 of Form 1040A.
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