IRS publicizes tax credit for working poor
Anna Escobedo Cabral knows what it is like to be poor. The 47-year-old treasurer of the United States grew up in San Bernardino. The eldest of five children, Cabral said her dad moved from job to job -- picking up garbage, working in the laundry room at a mental institution, toiling as a fry cook and finally as a chef.
When she was 16, money was so tight that Cabral decided to drop out of high school and apply for full-time jobs to help support her family. Her math teacher persuaded her to fill out college applications instead.
It changed her life. After all, her signature now appears on every dollar bill printed since she entered office on Dec. 13, 2004.
But she’s never forgotten how a few extra dollars could make all the difference to a family living on the edge. That’s why she’s pushing officials to get the word out about the earned income tax credit, a lucrative tax break for the working poor.
Virtually any parent who is trying to support a family on minimum wage qualifies.
“Every one of us is a reflection of our experiences,” Cabral said in an interview. “I think I have the ability to identify with people who are living in modest or lower situations.”
The earned income tax credit is more of a welfare program than a tax break. Parents who earn less than $38,348 can qualify for “refunds” of as much as $4,536.
Unlike a normal refund, which returns money the taxpayer has already paid through withholding, those eligible for this credit don’t have to have paid tax to get a refund. They merely need to have wages from a job.
Last year, more than 22.2 million taxpayers claimed $41.4 billion through the credit. But the Internal Revenue Service estimates that as many as 5 million additional taxpayers could qualify but aren’t aware of it.
“We have to do a better job of reaching out to people,” Cabral said. “If you think about families at those income levels, this could mean the difference of being able to get a more reliable car to get to your job or being able to start your first savings account.”
Cabral is launching EITC Awareness Day on Thursday as a first step in that outreach campaign. The day will be marked by more than 65 news conferences held all over the country, which will be co-sponsored by the IRS and a group of partners, including the United Way.
Among other things, Cabral wants nontraditional families -- such as those in which children are being raised by grandparents -- to know that they too might qualify for this program.
The point of the conferences is to raise awareness of the credit and to direct eligible individuals to Volunteer Income Tax Assistance centers where they can get free tax help. Cabral says free assistance is pivotal because the tax code has become too complex for most individuals to handle on their own.
“The tax code is 11,000 pages long. No one can understand it,” she said. “We want to make sure that low-income people are aware that they can qualify for the credit and there are people who will help them. We have dozens of organizations that want to help.”
Claiming the credit requires filling out an additional form and sending it in with the main tax return.
A childless individual can claim a credit of as much as $412. Credits for those with eligible children are far more generous; a family of four can land as much as $4,536 this year.
But claiming the credit can be complex. Among other things, you must determine whether your child is eligible under the program. And the definition of an eligible child is long and full of exemptions. An eligible child can be a son, daughter, adopted child, grandchild or stepchild. He or she must be younger than 19, a full-time student or disabled.
On the bright side, there is lots of help available. The IRS and partners including AARP and the United Way sponsor thousands of Volunteer Income Tax Assistance centers, which are held in schools, senior centers, libraries and churches. Volunteers at these sites will prepare returns for lower-income filers for free.
Cabral also wants to draw attention to a new IRS program that allows people to split their refunds among more than one account.
The idea, she said, was to give taxpayers the option of having some of their refunds deposited into a checking account for immediate use and some deposited into a savings or retirement account.
This is particularly useful for lower-income families, whose tax refunds are likely to be the biggest checks they’ll receive all year, she said.
If they’re able to set a portion of that aside in a savings account, it can set them on a path to a brighter future, giving them a chance to save for retirement or their children’s education -- a goal that Cabral deems particularly valuable.
“We have to help citizens think about how what they do today will help them tomorrow,” she said. “We didn’t have any savings when I was growing up.
“My going to college was a sacrifice for my father because it meant that the second wage earner was out of the house,” Cabral added. “I paid for college with scholarship dollars. Any extra money, I sent home to my family.”
Kathy M. Kristof welcomes your comments but regrets that she cannot respond to every question. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For previous columns, visit latimes.com/kristof.
