Now is the time to check tax deductions, credits

By Michelle Singletary

For millions of Americans filing their 2009 tax returns, things could be vastly different this time around.

The recession and the high unemployment rate may have changed your tax situation. As such, this year it’s important that you research the tax deductions or credits you now may be eligible to receive.

For example, you may have previously earned too much for the earned-income tax credit, which was created to help those who work but have modest incomes. Unfortunately, a lot more people now fall into this category. If this is you, don’t overlook earned income, which is a refundable credit — meaning you can get money back even if you owe no tax or the credit is more than the amount of tax owed.

“The value of the credit is larger than ever before, particularly for families with three or more children,” said David Williams, chief of the IRS Electronic Tax Administration. “Because you were earning more, this credit may not be on your radar screen.”

Last year, nearly 24 million people received $50 billion in earned income benefits, the IRS reports, with an average credit of more than $2,000. The credit is one of the federal government’s largest anti-poverty programs.

Eligibility for the credit is determined in part by how much you earn and the size of your family, specifically whether you have qualifying children in your household.

For tax years 2009 and 2010, the American Recovery and Reinvestment Act included a temporary increase for taxpayers with three or more qualifying children. The maximum credit for this new category is $5,657.

If you have a qualifying child, you get more money. But don’t count yourself out if you’re single. Childless singles and couples may still be eligible for the credit, albeit for a lesser amount.

To qualify for the credit, your adjusted gross income and earned income (it has to be earned) must each be less than $43,279 ($48,279 if married filing jointly) if you have three or more qualifying children. The limit is $40,295 ($45,295 married filing jointly) with two children; $35,463 ($40,463 married filing jointly) with one; and $13,440 ($18,440 married filing jointly) if not claiming any children.

If you meet the earned income threshold, the maximum credit you can claim for tax year 2009 is $5,657 with three or more qualifying children;

$5,028 with two; $3,043 with one; and $457 with none.

If you take the credit, make sure you do it right. Because this is a valuable credit, there’s also a fair amount of cheating.

“We do see a significant amount of fraud,” Williams said.

In her annual report to Congress, Nina E. Olson, the national taxpayer advocate, said the “complexity involved in claiming the earned-income tax credit can undercut the program’s intended purpose,” which is to help low-income working families. This complexity can lead to people intentionally or unintentionally taking the credit when they don’t qualify, or claiming too much of a credit.

Historically, one out of four eligible taxpayers fails to claim the credit, which is why the IRS is again this year pushing to get information out, Williams said. Typically, people who fail to claim the credit include those whose earned income falls below the threshold required to file a tax return, grandparents raising grandchildren, or people with disabilities.

You have to file a tax return and specifically claim the credit in order to get it.

On the IRS Web site, www.irs.gov, the credit assistant tool can help you determine eligibility. Set aside about half an hour and be prepared to answer quite a few questions. If you already know that you are eligible for the credit, the online tool will estimate your credit amount.

If you don’t want to bother with the online tool, there is free tax help available through the Volunteer Income Tax Assistance and the Tax Counseling for the Elderly programs. To find the volunteer assistance site nearest you, call the IRS at 800-829-1040.

This is a lucrative credit that you shouldn’t pass up if you’re eligible.

Washington Post Writers Group