Get Credit When It’s Due

The earned income tax credit (EITC) means extra cash in the pockets of many workers. But some who are eligible for the credit don’t get it. Why?

"Because to get the EITC, people must file a tax return," said John Dalrymple, IRS Chief Operations Officer. "Some workers earn so little, they legally don’t have to file," Dalrymple explained. "By not filing, they’re missing out on money they’re entitled to receive from a few dollars to as much as $3,756."

The EITC is a special tax break for lower-income workers. It’s a refundable credit that reduces the tax some workers owe and may give them refunds. A unique feature of the credit is that people can get it even if they don’t owe any federal tax or they had no tax taken out of their paychecks.

The credit is based on the amount of income earned and the number of qualifying children the workers have. A qualifying child can be a son or daughter, adopted child, grandchild, or stepchild who lives with the taxpayer in the United States for more than half the year and who meets certain age requirements. There are special rules for foster children. Workers without a qualifying child may also get a credit of up to $341.

To qualify, workers must have earned income from wages or self-employment. Their 1998 adjusted gross income (AGI) must be less than $30,095 if they had two or more qualifying children or less than $26,473 if they had only one qualifying child. A worker without a qualifying child must have AGI of less than $10,030, be at least age 25 and under 65, not be claimed as a dependent on anyone else’s return and must have lived in the United States for more than half the year.

Workers claiming the credit cannot have more than $2,300 in investment income, such as interest or dividends, and cannot be a qualifying child of someone else. Special rules apply to U.S. military personnel, nonresident aliens and divorced couples who have dependents.

Certain workers may be able to get extra money added to their paychecks throughout the year with the advance EITC. Details are on Form W-5, "Earned Income Credit Advance Payment Certificate," which they must fill out and give to their employers.

While the IRS wants people who are eligible for the credit to claim it, they are also cautioning taxpayers who claim the credit to be certain they qualify. "Due to new tax legislation, people who aren’t eligible for the credit, but claim it anyway, will have to meet additional requirements if they want to claim the credit in the future. In some cases, they may not be able to claim the credit for a number of years," said Dalrymple.

For more information on the EITC, call 1-800-829-3676 and order free Publication 596, Earned Income Credit (in English or Spanish), and Form W-5, or download here.

Faster Refunds With Direct Deposit

Expecting a tax refund? Get it faster by directly depositing it into a bank account.

Depositing a refund into a checking or savings account is more secure because there’s no check to get lost. And it takes the U.S. Treasury less time than issuing a paper check. So people can get their refunds faster without making a special trip to the bank.

Direct Deposit is available for all individuals, regardless of how they file their returns - by phone, computer or mail. Those who mail the IRS a paper return can fill in the "Refund" section.

People should ask their financial institutions if they accept Direct Deposit, including joint refunds into individual accounts. They can also verify the correct routing and account numbers.

Although Direct Deposit can be used in most situations, it can’t be used when filing a prior year’s return. Also, Direct Deposit will not occur if the name on the tax return and bank account don’t match. Direct deposits of refunds won’t go into foreign bank accounts, either. If, for some reason, the refund can’t be directly deposited into a taxpayer’s account, the U.S. Treasury will send a check instead.

Double Check Tax Returns

A couple of misplaced numbers or an incorrect name can stall the processing of a tax return and any expected refund. It's worth the time to double check every tax form and schedule before sending it off to the Internal Revenue Service. Here's a list of things to look out for.

l Numbers that are transposed, left out or totaled incorrectly.

2 Incorrect or missing Social Security numbers (SSNs). All dependents must have one (use Form SS-5 to apply). SSNs won't be preprinted on the tax package label, so people must be sure to write theirs on the return.

3 Incorrect or missing employer identification numbers (EINs) for employers and sole proprietors.

4 Names that have changed because of marriage or divorce. (Notify the Social Security Administration (SSA) immediately after a change.)

5 Aliens who do not qualify for SSNs must get IRS-issued individual taxpayer identification numbers (ITINs) (use Form W-7 to apply).

6 People in the process of a domestic adoption may need an adoption taxpayer identification number (ATIN) for the child (use Form W-7A to apply).

Don't forget to use the label and envelope from the tax package. Doing so can reduce the chance of misrouted mail or refunds because of hard-to-read handwriting. Make sure the envelope has enough postage and complete addresses, both return and IRS, so it won't go astray in the mail. Remember to sign and date the return. If taxes are due, make the check payable to the United States Treasury and don't staple it to the return.

To get IRS Form W-7 and Form W-7A, call 1-800-829-3676, or download here. To get SSA Form SS-5, call 1-800-772-1213.

When Names Change

Names change for different reasons, such as marriage or divorce. People should notify the Social Security Administration (SSA) when their names change because names and Social Security numbers on tax returns must match those the SSA has on record. If they don't match, federal tax refunds could be delayed or the Internal Revenue Service may contact those affected to straighten out the mismatch.

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