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Published: Monday, 2/13/2006

Earned income credit 'helps tremendously'


Tax preparer Richard Brown has seen first hand the benefits of the earned income tax credit offered to lower-income workers.

A city of Toledo auditor who runs Brown's Tax Service at night and on weekends, he said the credit "helps tremendously" those taxpayers who may be single and trying to raise children on their own.

"It's based on how many kids you have. Your tax refund could go from $500 to $1,000 to $3,000 to $4,000," he said. "It's real beneficial for those who are struggling."

The credit was created in 1975 in part to offset the burden of Social Security taxes and as a work incentive. The amount of the credit varies but it is generally determined by income and family size.

Recipients of the credit for 2004 received more than $39 billion in tax relief, but the Internal Revenue Service said it still has trouble convincing taxpayers to take the help.

"We know there are people out there who let the fear of filling out a tax form interfere with possibly getting earned income tax credit money they are entitled to," said agency spokesman Chris Kerns.

"Many people without children also qualify for smaller amounts of the earned income credit."

To be eligible for the credit, someone's adjusted gross income last year could not have exceeded the following amounts:

  • $35,263 ($37,263 if married filing jointly) with two or more qualifying children.

  • $31,030 ($33,030 if married filing jointly) with one qualifying child;

  • $11,750 ($13,750 if married filing jointly) with no qualifying children.

    For 2005, the maximum credit amounts are $4,400 for two or more children, $2,662 for one child, and $399 for no children.

    If a child is claimed, he or she must have lived with the taxpayer in the United States for more than half of 2005 and must be the taxpayer's son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them.

    The child must have been under age 19 at the end of 2005, or a full-time student under age 24, or any age if permanently and totally disabled during 2005.

    The IRS said people can mistakenly claim the complex tax credit, so it has set up Internet sites for tax preparers that allow them to quickly determine a client's eligibility.

    Experts are again warning recipients of the earned income tax credit about the pitfalls of "rapid refund" or "refund anticipation loans" that promise to deliver the money right away.

    About one out of every three recipients gets a refund anticipation loan, the Consumer Federation of America reports, with fees for such loans ranging from $29 to $120. The effective annual interest rate ranges from about 40 percent to 700 percent, depending on the size of the refund.

    Despite such potential problems, applying for the credit is beneficial to many families, said Monica Taylor, a tax preparer in the Toledo area for Jackson Hewitt Tax Service.

    "For many of them, it's the only way they can get a tax return," she said.

    "Some of them make $5,000 for the year, but if they have a child, they would be able to get $2,000 back with the earned income tax credit."

    Contact Mary-Beth McLaughlin at: mmclaughlin@theblade.com or 419-724-6199.

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