S. E. Williams
This tax season California joins twenty-four other states and the federal government in offering an Earned Income Tax Credit to its low and moderate income workers—the hundreds of thousands of Californians who work hard yet barely manage to make ends meet.
The nation’s federal Earned Income Tax Program Credit became law in 1975 and has been periodically massaged, changed, enhanced and/ or expanded in the years since. Today, the EITC is considered by a number of experts as one of the most effective tools at reducing poverty in the United States.
The success of the EITC is directly linked to rewarding work in addition to offsetting federal payroll and incomes taxes. The amount of the tax credit increases with each and every dollar earned until his/her income reaches the maximum allowable under state or federal eligibility requirements.
Beginning this year, the CalEITC will build on the federal EITC benefits—to reduce the taxes paid by the working poor. As a result, those who file get to keep more of what they earned.
Although the CalEITC complements the federal tax credit, it is not a mirror image of the federal program. There are a couple of important distinctions between the two.
To qualify for EITC, a filer must have earned income reported on a W-2 form such as wages, salaries and tips, which were also subjected to California withholding. The state’s Franchise Tax Board defined earned income as W-2 wages, salaries, tips and other employee compensation, but only if such amounts are subject to California withholding. Unlike the federal EITC, income from self-employment (1099) cannot be used to qualify for the CalEITC.
There are other CalEITC qualifications that clearly mirror the qualification requirements for the federal tax credit. They include the needs to be a United States citizen or Resident Alien and possession of a social security number that allows work in the United States.
The best news for those eligible for CalEITC is depending on your income, you may be eligible for the federal EITC as well. In addition, many who may exceed the income requirements for CalEITC may still qualify for the federal tax credit. For example, an individual with no children may qualify for CalEITC if their income is below $6,580; however, individuals with no children can earn up to $14,820 and still qualify for the federal EITC. A family with two or more children may qualify for the CalEITC if their income is below $13,870; however, a family with three or more children may qualify for the federal EITC with an income up to $53,267.
It is important to note Californians cannot claim CalEITC for any year previous to 2015; however, qualified individuals/families who previously failed to claim the federal EITC can claim the tax credit as far back as three years.
For more information on California’s Earned Income Tax Credit and/or to learn where you can file your state and federal income tax returns for free, visit www.CalEITC4Me.
For more information on federal EITC requirements, tax filers can contact the IRS by telephone at (800) 829-1040 or visit http://caleitc4me.org/federal-earned-income-tax-credit/ for assistance.