Split refunds help save.
Beginning this year, the IRS will let taxpayers split refunds into as many as three different accounts. For example, a taxpayer could deposit half of his refund into a savings account and the rest into his checking account.
This option could be particularly useful to low-income families who are eligible for the Earned Income Tax Credit (EITC). It put more than $40 billion into the hands of low-income, working families in 2006. Now, those families will have an opportunity to put that money directly into their savings.
Designed to encourage work, the EITC is refundable and is even available to the self-employed. Refunds are based on the number of children in a household: $4,716 for a family with two or more qualifying children and an adjusted gross income (AGI) of $33,241; and $2,853 for a family with one qualifying child and an adjusted gross income of $37,783. Those without children who make less than $14,590 can claim $428.
Twenty-two states, plus the District of Columbia offer state earned income tax credits. These credits are refundable in all but Delaware, Maine and Virginia and are usually calculated as a percentage of the federal credit. Together, the federal and state credits represent a sizable refund for low-income working families.
STATE EARNED INCOME TAX CREDITS BASED ON THE FEDERAL EITC State Percentage of Federal Credit (Tax Year 2007, Except as Noted) Delaware 20% District of 35% Columbia Indiana (a) 6% Illinois 5% Iowa 7% Kansas 17% Louisiana 3.5% (effective in 2008) Maine 5% Maryland (b) 20% Massachusetts 15% Michigan 10% (effective in 2008; to 20% in 2009) Minnesota (c) Average 33% Nebraska 8% (to 10% in 2008) New Jersey 20% (to 22.5% in 2008, 25% in 2009) New Mexico 8% New York (d) 30% North Carolina (e) 3.5% (effective in 2008) Oklahoma 5% Oregon (f) 5% (to 6% in 2008) Rhode Island (g) 25% Vermont 32% Virginia 20% Wisconsin 4%--one child, 14%--two children, 43%--three children Notes: From 1999 to 2001, Colorado offered a 10% refundable EITC financed from required rebates under the state's TABOR amendment. Those rebates, and hence the EITC, were suspended beginning in 2002 because of a lack of funds and again in 2005 as a result of a voter-approved five-year suspension of TABOR. Under current law, the rebates will resume in 2011, but a recent income tax cut that also depends on the rebates is likely to exhaust the funds, leaving the EITC unfunded. (a) Indiana's EITC is scheduled to expire in 2011. (b) Maryland also offers a non-refundable EITC set at 50 percent of the federal credit. Taxpayers may claim either the refundable credit or the non-refundable credit, but not both. (c) Minnesota's credit for families with children, unlike the other credits shown in this table, is not expressly structured as a percentage of the federal credit. Depending on income level, the credit for families with children may range from 25 percent to 45 percent of the federal credit; taxpayers without children may receive a 25 percent credit. (d) Should the federal government reduce New York's share of the TANF block grant, the New York credit would be reduced automatically to the 1999 level of 20 percent. (e) North Carolina's EITC is scheduled to expire in 2013. (f) Oregon's EITC is scheduled to expire in 2011. (g) Rhode Island made a very small portion of its EITC refundable effective in FY 2003. In 2006, the refundable portion was increased front 10 percent to 15 percent of the nonrefundable credit (i.e., 3.75 percent of the federal EITC). Source: Center on Budget and Policy Priorities, 2007.
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|Title Annotation:||TRENDS AND TRANSITIONS; Earned Income Tax Credit|
|Date:||Apr 1, 2008|
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