Feature Articles: Taxes
Tax Credits for People Who Work
Brenda Procter, M.S., State Specialist & Instructor Personal Financial Planning, University of Missouri Extension
Sizeable tax credits still exist for working
families--especially those with children--but as many as
15-20% of eligible Missouri families still do not file
for them. Families making so little that they are not
required to file a tax return might greatly benefit from
doing so.
Low and moderate-income families may qualify for one
or more of three Federal tax credits - the Child Tax
Credit, the Earned Income Credit, and the Child and
Dependent Care Credit. The credits' rules differ, but
many families may qualify for all three. Many states
offer additional tax credits to low to moderate-income
families. Missouri does not.
What is the Child Tax Credit?
The Child Tax Credit is a federal tax credit worth up
to $1000 per child in tax year 2007. Families must have
dependent children under age 17 to get it. Millions of
families became eligible last year even if they owed no
taxes. The Additional Child Tax Credit comes as a refund
from the IRS.
Who Can Claim the Child Tax Credit and How?
Generally, the 2007 Child Tax Credit is available to
a single or married worker who:
- is able to claim a child under age 17 as a dependent (child must live in the U.S. as a citizen or resident alien and be a son, daughter, stepchild, grandchild, adopted child, agency-placed foster child, or sibling, step-sibling, niece or nephew being raised as the taxpayer's own)
- the qualifying child must also have lived with you for more than half of the year and the child must not have provided more than half of his/her own support
- has either a Social Security Number or an Individual Taxpayer Identification Number
- files IRS Form 1040 or 1040A
The Child Tax Credit first is used to reduce or
eliminate a family's income tax bill. Any portion of the
Child Tax Credit that remains comes back as a refund in
the form of the Additional Child tax Credit. The total
size of the credit depends on the amount by which the
family earned income goes over $11,750.
What is the Earned Income Credit?
The Earned Income Credit is a special tax benefit for
low to moderate-income workers. It reduces their tax
burden, supplements wages, and makes work more
attractive than public benefits. The credit can mean up
to $2,853 for workers raising one child in their home,
or up to $4,716 for workers raising more than one child.
Although children must meet residency requirements, a
child does not have to be claimed as a dependent to
qualify a worker for the Earned Income Credit. Even
workers without children can qualify for up to $428.
Who Can Claim the Earned Income Credit and How?
The Earned Income Credit is for full-time or
part-time, single or married workers raising at least
one "qualifying child" at home--and some childless
workers. Workers must meet certain income standards.
A qualifying child is a son, daughter, stepchild,
adopted child, agency-placed foster child, or
grandchild; or a sibling, step-sibling, niece, nephew,
step-niece or step-nephew being raised as the taxpayer's
own; any qualifying child must be under age 19, or under
24 if in school full-time, or any age if totally
disabled. Taxpayers can qualify who:
- who earned less than $33,241 (or $35,241 for married workers) and were raising one child in their homes may be eligible for an EIC of up to $2,853.
- who earned less than $37,783 (or $39,783 for married workers), and were raising two or more children in their homes, may be eligible for a credit of up to $4,716.
- who are at least age 25 and under 65, who earned less than $12,590 (or $14,590 for married workers) and were not raising children in their homes may be eligible for a credit of up to $428.
To claim the credit, you must:
- have earned income from wages or self-employment, and
- have a Social Security Number for everyone on the tax return with names and numbers that perfectly match what Social Security cards shows; and
- file IRS Form 1040 or 1040A (must file jointly to get it if married); and
- file IRS Schedule EIC, if you have qualifying children
Some workers with children can get almost half their
credit throughout the year as advance payments added
back to their paychecks in equal installments. The
balance of their credits comes when they file a year-end
tax return. Many workers with stable, predictable
incomes can benefit from advance payments to help with
groceries, paying rent or other day-to-day expenses.
What is the Child and Dependent Care
Credit?
The Child and Dependent Care Credit is a tax benefit that helps
families pay for childcare that need to work or look for
work. It also helps workers pay for the care of a spouse
or adult dependent who is incapable of self-care. It can
offset taxes taken out as payroll withholding and cover
what is still owed at the end of the year, depending on
the size of the credit. In most cases, the credit can
only be claimed for a child who is claimed as a
dependent, but there are special rules for children of
divorced or separated parents.
The Child and Dependent Care Credit differs from both the Earned Income
Tax and the Child Tax Credit in that families earning
too little to pay Federal income tax cannot take the
Child and Dependent Care Credit. The Child and Dependent
Care Credit is between 20 and 35 percent of expenses up
to $3000 for one child or dependent, or up to $6000 for
more than one child or dependent. It can mean a credit
up to $1050 for families with one child or dependent in
care, or up to $2100 for families with more than one in
care.
Who Can Claim the Child and Dependent Care Credit and How?
Families can claim the Child and Dependent Care Credit if:
- they paid for care in 2007 for a child under age 13 or a disabled adult who lived with them, AND they had earned income during the year, AND
- they needed the care to work or look for work (both spouses must need the care in a two-parent family, unless one is a full-time student or disabled), AND
- they paid over half the cost of keeping up their home (rent, food, etc.), AND
- they file IRS Form 1040 or 1040A, AND
- they file Form 2441 (if they use a 1040) or Schedule 2 (if they use a 1040), AND
- the amount they paid for dependent care in 2007 was less than their income for the year (for married couples filing jointly, the care must have cost less than the income of the lower-earning spouse).
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Can I Find Out More?
For a free, easy-to-understand tax credit outreach kit, contact the
The kit includes detailed worksheets, outreach strategy ideas, flyers, posters, brochures in both English and Spanish, and an envelope stuffer.
The National Women’s Law Center has materials on the Child and Dependent Care Credit. Contact them through their website at
Also go to the Internal Revenue Service website at
for detailed eligibility rules, brochures and filing forms.
Where Can Families Get Help With Tax
Forms?
Many Community Action Agencies in Missouri sponsor Volunteer Income Tax Assistance sites and offer tax credit information. Call your local Community Action Agency to find out about your community
If your community doesn’t have a Volunteer Income Tax Assistance site, consider working with IRS and local partners to get one started.
Sites are open from late January through April 15.
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Last update: Thursday, March 27, 2008
