January 2020

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Every year, tax time turns up like a bad penny.

Speaking of pennies, if you want to save some of your pennies, it’s important to understand what tax credits and tax deductions are and how they’re different.

Both tax deductions and tax credits can help reduce the amount of taxes you pay, but they work in different ways. Tax credits provide a dollar-for-dollar reduction from your tax bill, and are worth more than deductions but with the same value. Tax deductions reduce your taxable income.

Let’s Dig into Tax Deductions

You’ve probably heard of a tax deduction. But what exactly is it?

A tax deduction is an amount of money subtracted from your income before calculating how much you owe. It reduces the amount of income you pay taxes on, so you could pay less in taxes. How much a deduction saves you depends on your income tax bracket.

When you do your taxes you can choose between taking an itemized deduction or a standard deduction. Of course you should pick the one that saves you money.

Itemized deductions include things like:

• Student loan interest
• Medical and dental expenses
• State and local income tax
• Property taxes

For example, if you own a home and paid $2,500 in property taxes you may be able to deduct that from your income.

If you don’t have things that can be included in an itemized deduction, or a standard deduction saves you more money, that’s the way to go. The standard deductions for 2019 are $24,400 for people married filing jointly, $18,350 for those filing as head of household, and $12,200 for single and married filing separately.

Tax Credits

While tax deductions come off your income, tax credits shave dollars off your end tax bill.

It’s a dollar-for-dollar reduction in the amount of tax you owe.

Let’s say you owe $5,000 in taxes and you qualify for a $1,000 tax credit of some kind—that tax credit will reduce what you owe in taxes from $5,000 down to $4,000. 

There are federal, state and even some local tax credit programs for all kinds of things, from raising children to restoring historical properties.

Other common tax credits might include:

• Earned income tax
• Lifetime learning credit
• Saver’s tax credit
• Child tax credit
• Residential energy-efficient property credit

So, what’s the basic difference in how a tax deduction and a tax credit works?

The big difference between tax credits and tax deductions is this: tax credits directly reduce the amount of taxes you owe right from the beginning. 

Tax deductions chip away at the income you pay taxes on, so you owe less.

The experts can offer a much better, more detailed explanation. 

The Bottom Line

Taxes are confusing—most of us don’t understand them let alone know how to complete them!

How do you do the right things to get the maximum amount back from the government? How do you pay as little as possible? What exactly are tax loopholes, and is that the only way to save money when it comes to taxes? If it makes you feel any better, you’re not the only one asking these questions.

So, there you have it. That wasn’t so bad. Instead of struggling with your taxes this tax season—because let’s face it, most of us don’t have a clue how to file perfectly—why not leave it to the experts to help you get the refund you deserve, and not pay more than your share.

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Would you want to miss out on a good thing? Especially something that could save you money? You could be if you’re missing out on one of the biggest opportunities to get a break on your taxes…EITC!

EITC doesn’t just cut the amount of tax you owe. It can also score you a refund, and in some cases a refund that’s more than what you actually paid in taxes!

Recent changes expanded something called the Earned Income Tax Credit (EITC)—an important tax credit program for workers with low to moderate incomes.

[fusion_button link=”https://cwfphilly.org/resources/about-eitc/” text_transform=”” title=”” target=”_self” link_attributes=”” alignment=”left” modal=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” color=”default” button_gradient_top_color=”” button_gradient_bottom_color=”” button_gradient_top_color_hover=”” button_gradient_bottom_color_hover=”” accent_color=”” accent_hover_color=”” type=”” bevel_color=”” border_width=”” border_radius=”” border_color=”” border_hover_color=”” size=”xlarge” stretch=”default” icon=”fa-comment-dollar fas” icon_position=”left” icon_divider=”no” animation_type=”” animation_direction=”left” animation_speed=”0.3″ animation_offset=””]See If You Qualify for EITC[/fusion_button]

The IRS says there are many households that are eligible to claim the break but fail to take it. Could yours be one of them?

If your wages put you in a low to moderate income bracket and you meet the qualifications you could be missing out if you’re not claiming EITC. 

Taxes are confusing and it can be even more confusing for most people to figure out if they qualify for EITC. But if you are a working family or individual in Southeastern Pennsylvania or Southern New Jersey, our professional experts can help you understand EITC and whether you qualify for it. The amount you receive depends on your income and the number of children you may have.

For the 2019 tax year, the earned income tax credit can earn you as much as $6,557. In general, the less you earn, the larger the credit. And families with children often qualify for the largest credits.

To qualify for EITC you must meet certain basic requirements:

1. You, your spouse, and any qualifying children all have to have Social Security numbers. 
2. You can’t use the married filing separate filing status.
3. Your investment income for the year must be $3,450 or less.
4. You have to have at least $1 in earned income for the year (which includes wages, salaries, tips, and other pay earned from employment, self-employment income, and long-term disability benefits).

Add up your income.

While you have to have at least some earned income to qualify, you can’t exceed the income limits set by the credit. 

There are different income limits based on your filing status and on the number of qualifying children you have. The child must be related to you as a son, daughter, adopted child, stepchild, foster child, grandchild, sibling, or descendant of a sibling; they also have to be younger than 19 (or younger than 24 if a full time student) and live with you more than half the year.

Calculate your credit.

If you meet the basic requirements to claim the credit, you have to figure out just how much of a credit you can claim. The maximum amount for EITC is based on how many qualifying children you have. For 2019, the maximum credit available is as follows:

• $6,557 with 3 or more qualifying children
• $5,828 with 2 qualifying children
• $3,526 with 1 qualifying child
• $529 with 0 qualifying child

There are special EITC rules for members of the military and the clergy, as well as for people who have disability income or who have children with disabilities. EITC has no effect on certain welfare benefits. Any refund you receive because of EITC generally will not be considered income when determining whether you are eligible for, or how much you can receive from, the following benefit programs:

• Temporary Assistance for Needy Families (TANF)
• Medicaid and Supplemental Security Income (SSI)
• Food stamps
• Low-income housing

Yes, it takes some work to claim this credit, and sometimes it can delay your refund. But given how much money you stand to make from it, EITC is well worth the work and the wait. 

Why wouldn’t you contact experts who will prepare your taxes for free to find out if you can benefit from this major tax break?

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Raising kids is expensive, but if you qualify for the Child Tax Credit, your kids could actually save you money! 

Children can be worth up to $2,000 each—in taxes, that is. If you have kids and earn less than $400,000 as a married couple or $200,000 as an individual, the Child Tax Credit will save you money on taxes this year. 

Yes, you read that correctly—your kids might mean you pay less in taxes! 

The Child Tax Credit is a tool that helps reduce the amount you pay in taxes. Whatever amount of the tax credit you receive is subtracted from the total of your tax bill, which could significantly cut the amount you pay. 

Parents or guardians with qualifying incomes can claim the full child tax credit amount for each of their dependent children. Preparing your taxes can be confusing and complicated, but qualifying working families and individuals in Southern Pennsylvania and Southern New Jersey can get free, professional help.

Exactly how much can you claim? 

The child tax credit amounts to $2,000 per child in 2019.

Married couples filing jointly who make under $400,000 per year and single individuals, head of household, or married couples filing separately who earn less than $200,000 per year, will be able to take $2,000 per child as their Child Tax Credit.

For example, if you’re a single parent who makes $28,000 a year and you have three kids you can deduct $6,000 for a Child Tax Credit. 

Are there income limits for the child tax credit?

For 2019, it’s $200,000 for the modified adjusted gross income. Taxpayers who are married filing jointly with an adjusted gross income of $400,000 or less can receive the full credit.

Beyond the basic income limits, there are a few more stipulations to qualifying for the child tax credit. In addition to knowing your income, you should double check the requirements dictated by the IRS, listed below in order to be certain you qualify for all or some of the Child Tax Credit.

• Citizenship
  Qualifying children must be citizens or residents of the United States who can be claimed as dependents by the taxpayer.
• Age
  Children must not have reached the age of 17 by the end of the tax year.
• Relation
  Children may be your blood children, grandchildren, stepchildren, and/or adopted children. Foster children also fall under this category as long as they have lived in your home for the entire year in question.
• Dependency
  You must claim the child as a dependent. You need to claim the child as a dependent on your federal taxes in order to be eligible for the credit.
• Residence
  The child must live with you. In fact, the child must have resided in your home for at least half of the tax year, although some exceptions apply.

We may argue and disagree about things like politics and religion, but pretty much every American is united in their desire for a lower tax bill. Who wants to pay more taxes than necessary? No one, of course! 

The Bottom Line

It bears repeating—if you have kids and earn less than $400,000 as a married couple or $200,000 as an individual, the Child Tax Credit will save you money on taxes in 2019. 

Check with us to see if you qualify! 

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