4 Things You Need to Know About the Earned Income Tax Credit

Today is dedicated to raising awareness of a federal tax credit heralded as the single most effective antipoverty program for working age people. Indeed, the Earned Income Tax Credit (EITC) brought 6.5 million people above the poverty line in 2015, including 3.3 million children. The credit also reduced the severity of poverty for another 21.2 million people, including 7.7 million children.

For all of EITC’s successes on reducing poverty, only four out of five eligible taxpayers successfully claim it on their federal tax returns every year, which means that more than 6 million people leave money on the table during tax time. With the 2017 tax season already underway, we must arm ourselves with information about the EITC before filing our tax returns. This knowledge could make the difference between paying less in taxes, no taxes, or even receiving a tax refund.

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Expand the EITC, Expand Workers’ Livelihoods

By Yuqi Wang, Economic Policy Analyst, NCLR

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The latest Census data on income and poverty is proof that hardworking Americans and targeted policy interventions can create profound economic change. In 2015, there were 3.5 million fewer Americans living in poverty. The Latino community, in particular, saw immense improvements in health and economic stability, including a rise in household income from $42,491 in 2014 to $45,148 in 2015.

One program that lifted 27.5 million working families above the poverty line in a single year is the Earned Income Tax Credit (EITC). It fights poverty by decreasing low- and moderate-income workers’ federal taxes and provides a refund when workers’ tax obligations fall below $0. The EITC is a critical infusion of cash for many hardworking families, helping them pay rent, put food on the table, and pay down debt.

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New Law Creates Challenges for Immigrants Trying to File Taxes

Guest blog post by Max Moy-Borgen, Tax Program Manager, Mission Economic Development Agency

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Photo: John Morgan

Last December, Congress passed legislation that will make it more difficult for immigrants with an Individual Taxpayer Identification Number (ITIN) to file and pay their taxes. Immigrants with older ITINs will have to revalidate their number based on a schedule specified in the law.

I oversee tax preparation for low-income and immigrant families at the Mission Economic Development Agency (MEDA), the largest free tax preparation service in San Francisco, with four Volunteer Income Tax Assistance sites in the city that help 4,200 clients each year. From my experience, I know that if this requirement is not implemented properly, it will have a detrimental effect on those who are just trying to pay their taxes.

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Have an Individual Taxpayer ID Number? There Are Some Changes You Need to Know About

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Photo: 401kcalculator.org

At the end of last year, Congress passed a $680 billion tax package that made a number of tax credits permanent, including 2009 improvements to the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), and extended others for varying periods of time.

The legislation also created new requirements for immigrants who file their taxes in April 2017 with an Individual Taxpayer Identification Number (ITIN) for income earned in 2016 and beyond.

As explained in a recent webinar (slide deck below), ITINs issued after December 31, 2012 will remain in effect unless a taxpayer does not file taxes for three consecutive years. In this case, the taxpayer will need to revalidate their number. Taxpayers with older ITINs will also need to revalidate based on a schedule specified in the law.

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Now, more than ever, it is critical that immigrants understand these requirements and their obligations. The extent to which the Internal Revenue Service plans to notify taxpayers of the revalidation process and schedule is not known. ITINs not only allow immigrants to pay taxes but are needed in many instances to open bank accounts, obtain driver’s licenses, and tax documents can be used to establish proof of residency. For these reasons and many more, NCLR asks its Affiliate Network and partners beyond to let friends, family, and clients know about the new revalidation timeline and process.

ITINs issued before January 1, 2013 will remain in effect until whichever comes first:

  • A taxpayer does not file for three consecutive years
  • ITINs issued before January 1, 2008 must revalidate by January 1, 2017
  • ITINs issued in 2008 must revalidate by January 1, 2018
  • ITINs issued in 2009 or 2010 must revalidate by January 1, 2019
  • ITINs issued in 2011 or 2012 must revalidate by January 1, 2020

To summarize: if any ITIN filer does not pay their taxes for three consecutive years, the taxpayer must revalidate their number. If taxpayers with older ITINs file each year, then they must revalidate by the date specified in the law.

The law specifies that taxpayers can apply for an ITIN in person, by mail, or at a Certified Acceptance Agent by providing original documents. The law does not specify what the process for revalidation will require. For example, it is not known if taxpayers will need to reapply for an ITIN by resubmitting all original documentation, if they will receive a new number or simply continue using their existing number, and more.

What is clear is that if a taxpayer does not understand these requirements, they could risk losing all of their CTC.

If someone with an ITIN issued before 2008 files their taxes in April 2017 without revalidating, those tax filings will be rejected. The taxpayer will need to revalidate their ITIN and refile their taxes. At this point, the individual will no longer be eligible for the CTC.

Decoding the Tax Deal: What It Means for Latinos and What Lies Ahead

Photo: http://401kcalculator.org, Creative Commons

Photo: http://401kcalculator.org, Creative Commons

With the New Year just around the corner, many of us are working to finish projects and tie up loose ends before heading off on vacation. Congress just did the same. Before leaving for the year, Congress passed a $680 billion tax deal making a number of credits permanent, including improvements to the refundable Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) that were set to expire in 2017.

The CTC and EITC help keep low-income working Latino families out of poverty. Because of this legislation, about four million Latino working families, including nine million children, will not lose any of their tax credits. The EITC amounts to as much as $6,143 per family, while the CTC can add up to $1,000 per child. These credits are especially valuable to the Latino community because more than 40 percent of Latino workers earn poverty-level wages.

Even as we celebrate this victory, we are concerned by a number of restrictions targeting hardworking immigrant taxpayers. Some of these changes in the law will keep some from receiving credits and make it harder for other immigrants to access credits for which they are eligible. For example, anyone who receives a new Social Security number (SSN), regardless of immigration status, cannot claim the EITC retroactively (a process called “look-back”) after April 15, 2016. Most other filers remain eligible to claim their EITC for up to three previous years. The previous law allowed people with new SSNs to claim the EITC retroactively as well. Another change targeting immigrants is the fact that anyone who receives a new Individual Taxpayer Identification Number (ITIN) cannot claim the CTC or AOTC retroactively after April 15, 2016.

Other changes may result in challenges for immigrants that depend on an Individual Taxpayer Identification Number (ITIN) to pay taxes and receive credits available to workers. Some of these changes are based on guidance on the ITIN application process issued by the Internal Revenue Service in 2012. Since then, there has been a drop in ITIN applications, leaving some to wonder whether the guidance is making it too hard to get an ITIN. One of these changes includes the requirement for new ITIN recipients to reapply on a recurring basis to keep their ITIN. There are processing delays for ITIN applications under the current system; adding ITIN revalidation could worsen those delays and keep hardworking Latino immigrants from credits available to them.

The dedication and work of NCLR Affiliates and partners helped to successfully push for Congressional action to make tax credits for working families permanent. More work lies ahead to make sure the Latino community can maximize credits under the new law. The lead up to tax season offers the opportunity to make sure Latinos know their eligibility and how to claim credits successfully. There will also be a need to help ensure the new ITIN requirements are implemented fairly and effectively. To that end, the Latino community should be prepared to work with the Treasury Department on implementation. These and other efforts will help make sure now-permanent tax credits continue to make a difference in the lives of millions who are working but still struggling to get by.

For more information about the new tax package and its impact on Latinos read our new fact sheet—The Congressional Tax Package and Latinos: What You Need to Know.