The EITC lifts an average of 5 million families above the poverty line each year.[1]  However, over 20% of those families qualifying for the credit do not apply for it.[2]  Furthermore, according to a Brookings Institution study, an estimated $1.75 billion of EITC monies are diverted to “paid preparers” for tax preparation services.[3] This is money that could help low-income families, and boost local economies; instead it ends up in the hands of “paid preparers”.

In the city of Chester in Delaware County 4,921 EITC returns were filed last season. This placed over $9 million into the hands of Chester families. However, 60% of the claims were filed with “paid preparers”, which means that a great many of those dollars went to pay for tax preparation services. Those services cost an average of $93 per return. Furthermore, 67% of the filers opted for the “refund anticipation loan” option, and that adds to the cost of the tax services provided.

In Montgomery County $2.8 million of EITC monies were not claimed in 2001. This let’s us know that awareness of the program is NOT wide spread enough. Additionally, 6,856 ineligible claims were filed, which hints at misinformation of the program. The good news is that about $19 million was claimed in Montgomery County.

In order to keep more money in the pockets of these low-income families and individuals we must step-up our VITA work in Delaware County.  This year we will be closely aligned with a major Philadelphia initiative – the Campaign for Working Families. We are also evaluating curricula to be used in financial literacy seminars, free to the public, that will educate low-income families on financial planning, saving, and repairing credit.

 Quick Facts

·  EITC, enacted in 1975 with bipartisan support, is a federal tax credit that recognizes the economic contributions of working families

·  For 2005, the maximum credit is $4,400, and families with incomes up to about $37,000 may qualify

·  If you did not claim the EITC on your federal tax return last year, you can still amend your past returns to claim the credit for several prior years.

 ·  IRS Publication 596 ("Earned Income Credit") provides a detailed explanation of the EITC eligibility requirements, includes worksheets to accurately compute the EITC, and it even explains how IRS compute your EITC for a taxpayer.  The IRS publication is available online at: http://www.irs.gov/pub/irs-pdf/p596.pdf

EITC Eligibility

Rules for Everyone:

• Must have a valid Social Security Number issued by the SSA
• Filing status cannot be married filing separately
• Must be a US citizen or resident alien all year
• Cannot file Form 2555 or Form 2555-EZ
• Investment income must be less than $2,600
• Must have earned income

Does Your Child Qualify?

• Child must meet the relationship, age & residency tests
• Taxpayer cannot be a qualifying child of another person
• Qualifying child must have a valid Social Security Number

Rules with No Qualifying Children

• Taxpayer must be at least 25 years old but under age 65
• The taxpayer (or spouse if filing a joint return) cannot be the dependent of another person
• Taxpayer cannot be a qualifying child of another person
• Taxpayer must have lived in the US for more than half the year

[2]  In 1999 24% of those eligible in Philadelphia County did not apply for EITC. Similarly, in 2001 about 20% of those eligible did not file EITC in Montgomery County. (according to IRS filing data for corresponding years)

[3] H&R Block and Jackson Hewitt alone prepared 15.6% of all filed 2001 returns. Furthermore, 52% of EITC filers filed with “paid preparers” in 2001. (The Price of Paying Taxes)