Tax Credits Modified To Help Hurricane Victims

Jeanette A. Tucker  |  3/15/2006 1:26:57 AM

News You Can Use For March 2006

Special rules for victims of hurricanes Katrina, Rita and Wilma will ease the eligibility requirements for the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC).

These changes give taxpayers more options to qualify for substantial tax refunds, according to LSU AgCenter family economics professor Dr. Jeanette Tucker.

For this filing season, Tucker says hurricane victims who experienced smaller earned incomes in 2005 can elect to compute their EITC and ACTC using their larger 2004 earned incomes. The option could result in a larger tax refund.

Tucker recommends calculating the credits using each year’s income to see which amount provides the best overall tax benefit.

The option is limited to individuals who lived in the hurricanes Katrina, Rita or Wilma disaster areas. Also, the 2004 earned income must be higher than the 2005 income to exercise the income option.

Twenty-three Louisiana parishes are included in the disaster areas: Acadia, Allen, Ascension, Cameron, Calcasieu, Beauregard, Evangeline, Iberia, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Plaquemine, Sabine, St. Landry, St. Martin, St. Mary, St. Tammany, Terrebonne, Vermilion, Vernon and West Baton Rouge.

The decision to use your 2004 income for EITC and ACTC purposes will not affect the amount of income tax the worker owes for 2005. Income tax will be based on 2005 earned income and will not be lower than if the tax had been calculated based on the higher 2004 income.

The IRS has developed applications on its Web site and a disaster telephone hotline to help taxpayers who lost their prior tax records to take advantage of this special election without filing delays.

Hurricane victims can access their 2004 earned income amounts using the new Your 2004 Earned Income Option on IRS.gov (https://sa.www4.irs.gov/irfof/lang/en/irpyeiogetstatus.jsp) and entering two shared secrets - personal information known only to the taxpayer and IRS.

Taxpayers without Web access can use an automated telephone application by calling 866-562-5227.

The income option is part of a broader Katrina Emergency Tax Relief Act of 2005 and the Gulf Opportunity Zone Act of 2005 passed by Congress. The optional income selection does not apply to other items on the tax return and if selected for EITC, must apply for ACTC as well.

The Earned Income Tax Credit is a refundable federal income tax credit for low-income working individuals and families. It is intended, in part, to offset the burden of Social Security taxes and to provide an incentive to work. Individuals must meet certain income limitations and if claiming a child, must meet certain rules.

Single or married people who worked full time or part time at some point in 2005 can qualify for the EITC, depending on their income:

– Workers raising one child in their home and making less than $31,030 (or $33,030 for married workers) in 2005 can get an EITC of up to $2,662.

– Workers raising more than one child in their home and making less than $35,263 (or $37,263 for married workers) in 2005 can get an EITC of up to $4,400.

– Workers not raising children in their home and were between ages 25 and 64 on Dec. 31, 2005, with an income below $11,750 (or $13,750 for married workers) can get an EITC up to $399.

In 2004, more than 524,000 Louisiana families and individuals received almost $1,134 billion from the EITC.

The Additional Child Tax Credit may be available to certain taxpayers if they have three or more qualifying children or if they have earned income that exceeds the base amount for the year.

The base amount of earned income needed can be found in the Instructions for Form 8812.

The Additional Child Tax Credit applies to certain taxpayers who receive less than the full amount of the Child Tax Credit. The Additional Child Tax Credit may give you a refund even if you do not owe any tax.

A qualifying child for both EITC and ACTC must meet certain residency and relationship requirements. However, the new tax relief laws also allow the IRS to grant leeway for victims who were unable to maintain the residency requirement. Generally, a child must live in the same household with the taxpayer for more than half the year.

Also, for taxpayers living in any of the declared disaster areas, grants from state programs, charitable organizations or employers to cover medical, transportation or temporary housing expenses should not be included in their income and will not affect their eligibility for EITC.

For related family economics and consumer topics, click on the Family and Home link on the LSU AgCenter homepage, at www.lsuagcenter.com. For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.

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On the Internet: LSU AgCenter: www.lsuagcenter.com

Source: Jeanette Tucker (225) 578-1425, or Jtucker@agcenter.lsu.edu

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