Two Common Tax Credits: Child Tax Credit (CTC) & Earned Income Tax Credit (EITC)

Two common tax credits are the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) (Internal Revenue Service, n.d.b). In 1997, Congress established the CTC under the Taxpayer Relief Act as an effort to help struggling families with children. "The CTC is a federal program that provides a credit or a cash supplement to low and moderate-income households who qualify" (TaxCreditResources.org, 2008, What is the Child Tax Credit [CTC]? section). Currently, qualified families may claim a credit of $1,000 per child on their tax return under the CTC.

And one feature of this tax credit that makes it so useful and appealing to taxpayers is that it is partially refundable. What this means is if a family is entitled to a CTC that exceeds the amount of income taxes they owe, the IRS will actually send them a portion of the CTC as a refund. Also, qualified families who did not need to pay any taxes for 2007 may still qualify for this partial refund, as long as they earned over $11,750 in 2007 (TaxCreditResources.org, 2008). Ultimately, married couples who file jointly and those that file separately both can qualify for the CTC. However, if a couple files separately, a number of credits and deductions, including the CTC, "are reduced at income levels that are half of those for a joint return" (Internal Revenue Service, n.d.b, Married Filing Separately, Special Rules, 9). Therefore, married couples should keep this in mind if they might qualify for CTC and are deciding how to file their income taxes (Internal Revenue Service, n.d.b).

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) "is a tax credit for certain people who work and have low wages" (Internal Revenue Service, n.d.a, Q1. What is the Earned Income Tax Credit [EITC]?. The IRS offers a set of EITC Thresholds and Limitations, which an individual must fall within to qualify for the EITC. In addition, just like the Child Tax Credit, the EITC can work both as a tax credit and a refund, if a qualified individual receives an EITC in excess of the amount of taxes he or she owes the IRS. A qualified person can either allow the IRS to calculate how much he or she will receive for the EITC or determine the amount himself or herself using the Earned Income Credit Worksheet or online using the EITC Assistant Tool. In the end, married couples who file their federal income taxes separately cannot qualify for the EITC (Internal Revenue Service, n.d.a; Internal Revenue Service, n.d.b).

References:

Internal Revenue Service. (n.d.a). Earned income tax credit questions and answers. Retrieved June 26, 2008, from http://www.irs.gov/individuals/article/0,,id=96466,00.html

Internal Revenue Service. (n.d.b). Filing status. In Publication 501. Retrieved June 26, 2008, from http://www.irs.gov/publications/p501/ar02.html#d0e1116

TaxCreditResources.org. (2008). Federal child tax credit (CTC). Retrieved June 26, 2008, from http://www.taxcreditresources.org/pages.cfm?contentID=41&pageID=14&subpages=yes&dynamicID=625