For many in New Hampshire, earned income tax credit is a missed opportunity
Many people in New Hampshire do not know they’re eligible for the earned income tax credit, a problem some attribute to poor marketing of the tax break by the IRS. (Chip Somodevilla | Getty Images)
The “earned income tax credit” is a big tax break that could use a better name. One in four eligible New Hampshire residents failed to claim it in 2018, giving up nearly $50 million, a problem many attribute to poor marketing by the IRS.
There are fears those numbers will grow this year under expanded rules that not only make an additional 66,000 Granite Staters eligible for the credit (including those without kids) but significantly increase the credit up to $6,700. Those who owe less than that in taxes will be paid the difference.
It could be such a missed opportunity for many that Cary Gladstone of Granite United Way in Manchester, which runs the free Volunteer Income Tax Assistance program, is rebranding it as a gift card to pay your taxes.
“We are talking about real money and real lives,” he said. “This is why the Granite United Way is on a soapbox. When we think of some of the population who are struggling to survive out there, imagine the difference this tax credit could make.”
Hoping to boost participation, Gladstone recently explained the one-year rule change to participants in an adult diversion program, and joined Phil Sletten of the New Hampshire Fiscal Policy Institute on a webinar hosted by U.S. Sen. Jeanne Shaheen to bring local and county officials up to speed. Sletten shares Gladstone’s concerns and says the tax break is a win for more than only those eligible to claim it.
“This expansion, even though it is temporary, is significant,” he said. “One preliminary estimate suggested that the (earned income tax credit) expansion could bring approximately $43 million to New Hampshire residents. When more residents are successfully able to access programs for which they are already eligible, more resources will flow to New Hampshire households and the economy, helping to boost the recovery for everyone.”
The earned income tax credit, introduced nearly 45 years ago, is available to low- and moderate-income people, and this year they don’t have to claim a child on their tax return to get it. Family members caring for their own children or certain relatives, such as grandchildren or siblings with disabilities, are also eligible.
To claim the credit, a person must be working, for themselves or someone else, and file a tax return. Barbara Heggie, director of the Low-Income Taxpayer Project at 603 Legal Aid, is focusing less on the new rules and more on encouraging everyone to apply for it, even if they have been told in past years they don’t qualify. And those who aren’t required to file a tax return because they earn too little should do so this year so they can claim the credit. For this group, there are online guides for using the IRS “non-filer” tool.
Until this year, the age limit to qualify was 25 to 65, and the credit maxed out at about $500. The age limits, child requirement, and amount of the credit have changed under the rule change included in the American Rescue Plan, which made similarly vast expansions to the child tax credit. (Advocates and lawmakers are working to extend changes to both programs and even make them permanent.)
IRS spokesman Robert Marvin referred the Bulletin to the IRS website for the new income limits. The IRS chart shows that people ages 19 years and older who earn no more than $15,820 (single filer, no kids) or $57,400 (married, filing jointly, with three or more kids) are eligible. The lower income threshold is a good one to check with a tax preparer because the Center for Budget and Policy Priorities, as well as other financial websites, said the new maximum income for single filers with no children is $21,400.
Eighteen-year-olds are also eligible if they are homeless or aging out of foster care. For the first time, people older than 65 are eligible too.
“We know there are many people who are working beyond the age of 65 and needing to make ends meet,” Gladstone said. “They are now eligible to claim the earned income credit even if they do not have a child to claim.”
He added that dropping the qualifying age down to 19 will for the first time allow younger workers to contribute to household expenses or support a child who lives with another family member.
The amount of the tax break ranges from $1,500 to $6,730 depending on income and the number of “qualifying” children living in the home more than half the time. That’s a broader group under the IRS definition than it sounds:
- any family member – even siblings, grandchildren, nieces, nephews, stepchildren, and adopted and foster children – who are younger than 19 (or 24 if in school full time)
- adult relatives who are permanently and totally disabled
The IRS explains additional qualifying rules, and specific rules for members of the military and clergy, on its website. There are other online calculators in plainer language, including one at nerdwallet.com that asks a series of questions to determine eligibility and estimate a tax credit.
Those who receive other financial benefits can be hesitant to take other financial assistance for fear their income will increase to the point where they lose – rather than gain – benefits. This can include people who are caring for a family member at home who is totally and permanently disabled. Gladstone said that “benefits cliff” is not a risk with the earned income credit.
“People can claim their full amount of the credit and not have it disrupt any income-based benefits from the federal government,” Gladstone said. “There’s a guardrail against the benefits cliff.”
Advocates are advising people with questions about the credit to contact 211, talk with their tax return preparer, or visit www.myfreetaxes.com, the AARP Foundation’s Tax-Aide, or the IRS’s tax assistance web page.
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