A Stimulus Boost for Some Earned Income Tax Filers

Two recent changes to the Earned Income Tax Credit (EITC) may put more money in your pocket in 2009 and in 2010 if you are married, or if you have three or more qualifying children.

Here are the latest changes that might benefit you:

More married couples now qualify for the maximum credit in 2009 and 2010 because the income levels at which the credit begins to phase out are $1,800 higher: $12,470 for married couples with no kids, and $21,420 for married couples with one or more qualifying children. Since the squeeze on the size of the credit starts at higher income levels, all married recipients will enjoy a slightly increased credit. And because income thresholds are indexed for inflation each year, it’s possible that still more married couples will qualify for the full credit in 2010.
Families with three or more qualifying children can qualify for a bigger tax credit. Under prior law, those families could receive a credit worth 40 percent of the first $12,570 of earned income. That percentage is increased to 45 percent for 2009 and 2010. Thus for 2009, those families can get a maximum credit of $5,656.50, or $628.50 more than under prior law. If indexing increases the $12,570 threshold in 2010, those families could receive an even larger maximum credit next year.

Changes don't affect 2008 tax returns

So if you’ve already filed, don’t worry that you missed a chance to claim a bigger credit. When you file your 2009 tax return, TurboTax will decide for you whether you qualify for one of these increases.

Remember that you don’t necessarily have to wait until you file your 2009 return next year to take advantage of these changes. The law allows workers who have at least one qualifying child to get a partial advance on their Earned Income Credit by reducing the amount of tax withheld from their paychecks during the year.

The maximum advance you can receive in 2009 is $1,825. To start getting it, you must fill out Form W-5 and submit it to your employer. If you already have a W-5 on file, you don’t need to submit a new one, but if the changes discussed here make you eligible for the credit for the first time, you may want to file a W-5.

Keep in mind that the new law doesn’t change the basic rules that limit who can qualify for the Earned Income Credit. For example, you must be a U.S. citizen (and any qualifying children must also be U.S. citizens), have earned income, and for 2009 not receive more than $3,100 in interest or dividends from rentals, royalties or stock and other assets during the year.