Working families with low incomes get added benefit

The government has provided new tax breaks for home buyers, vehicle buyers, and people paying for college. But what about working families struggling to make ends meet or those on low incomes?

They haven't been forgotten.

The Internal Revenue Service has added an income level for eligibility for the earned income tax credit. The change affects taxpayers who have three or more children. Previously, those with three children qualified for the earned income credit for the same amount as those with two.

Begun 34 years ago as a way to offset Social Security taxes and provide job incentives, the earned income credit works very simply: If the earned income tax credit exceeds the amount of taxes owed, the tax filer gets a refund for the difference.

The amount of the credit varies according to income and family size — which is why a new qualifying level for people with three children is important.

“This is significant,” said Dave Baymiller, a tax partner at the tax firm of Gilmore, Jasion & Mahler Ltd. in Maumee.

Tax returns must be filed this year by most taxpayers by April 15. Under the new level, singles with three or more qualifying children and earning less than $43,279, or married couples (filing jointly) and earning less than $48,279 can seek the earned income credit.

Besides a new category for those with three children, the amounts of income that tax filers can earn and still qualify for the credit have risen.

This year, the credit applies to:

• Singles who earn less than $13,440 (up from $12,880) or married couples who file jointly and earn less than $18,440 (up from $15,880) with no qualifying children;

• Singles who earn less than $35,463 (up from $33,995) or married couples who file jointly and earn less than $40,463 (up from $36,995) with one qualifying child;

• Singles earning less than $40,295 (up from $38,646) or married couples filing jointly and earning less than $45,295 (up from $41,646) with two qualifying children.

The limits on tax credits that can be claimed this year are $5,657 with three or more qualifying children, $5,028 (up from $4,824) with two or more qualifying children, $3,043 (up from $2,917) with one qualifying child, and $457 (up from $438) with no qualifying children.

Tax filers seeking the earned income credit must fill out a Schedule EIC form, which is attached to either form 1040, 1040A, or 1040EZ. Filers can have the IRS calculate the earned income credit using form 1040EZ.

The IRS' Web site, irs.gov, has a calculator to determine earned income. With interactive menus that ask questions and provide information using pop-up windows, the calculators can determine who is eligible, what their earned income tax credit might be, and how to fill out Schedule EIC.

At the other end of the tax spectrum is the AMT — alternative minimum tax — originally intended to ensure that everybody pays something. The AMT operates like a separate tax system, with those subject to paying the alternative minimum forced to do their taxes both the regular way and a second time under the AMT rules. The government takes whichever figure is larger.

Congress has frequently passed a temporary tax “patch” that resets AMT limits, in order to keep the alternative minimum from affecting too many taxpayers, and 2009 was no exception. About 30 million taxpayers are expected to escape paying the alternative minimum tax because of the patch.

Generally, a taxpayer is subject to the AMT if taxable income, plus any adjustments that apply, total more than the AMT exemption amount. This tax season, the new exemption limits are $46,700 (up from $46,200) for singles and $70,950 (up from $69,050) for married couples filing jointly. It is $35,475 (up from $34,975) for a married person filing separately.