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A little short between paydays?
You may be eligible to get extra money in each paycheck if you expect to earn under $24,396 in 1995 and have at least one child living with you in the U.S.
Ask you employer about the Advance Earned Income Tax Credit.
A Special Tax Credit
Have you heard about the Earned Income Tax Credit (EITC)? It's a special tax credit for certain lower-income people who work. The EITC is subtracted from the amount of tax you owe, so you end up paying less tax or you may get a refund. Even if you don't usually file a tax return - because you don't owe taxes or you don't earn enough money to have to file -you may still be able to get the credit.
Two Ways to Claim the Credit
There are two ways you can claim the credit. You can get it all at once when you file your tax return next year or you can receive up to $105 a month in you paychecks by having the EITC paid to you "in advance." To get the advance payment you must expect to earn less than $24,396 in 1995 and have at least one child living with you in the U.S.
Advance EITC Payment
To find our if you are eligible to get the advance EITC payment, complete the questions on the back of the attached Form W-5, "Earned Income Credit Advance Payment Certificate."
If you find out you qualify, give the bottom part of the form to your employer. Then based on what you earn, your employer adds an additional amount of money (a portion of the EITC) to your take- home pay throughout the year. If your only income is from self- employment, you cannot qualify for the advance EITC payment.
If at any time during the year your circumstances changes -your income rises above the dollar limit or you find you are no longer eligible to receive the EITC - you must fill out a new Form W-5 and give it to your employer to stop the advance payment. When you file you next return, you will have to repay any amount advanced to you for which you weren't qualified to receive.
Filing a Tax Return
If you receive the advance EITC in you pay, you must file a tax return. This will show the IRS the payments you received and will allow you to apply for any extra credit you may be entitled to.
You May Still be Eligible for EITC
Even if you don't qualify to get the advance EITC payment, you still might be able to claim the EITC on you 1995 tax return if in 1995:
1) you will earn less that $26,673 and have two or more children, or
2) you have no qualifying children, will earn less than $9,230, will be age 25 to 64 and will not be a dependent of another person, or
3) you qualify for EITC, but you are self-employed.
For more information contact you payroll office or call the IRS at 1- 800-829-1040.
Form W-5 Earned Income Credit 1995
Use Form W-5 if you are eligible to get part of the earned income credit (EIC) in advance with your pay and choose to do so. If you choose not to get advance payments, you can still claim the EIC on your 1995 tax return.
Caution: At the time this form went to print, Congress was considering legislation that would (1) allow certain members of the Armed Forces stationed outside the United States to claim the EIC and get advance payment of the EIC for 1995, (2) require the reporting of social security numbers for qualifying children born before November 1, 1995, and (3) make most nonresident aliens ineligible to claim the EIC for 1995. For later information about this legislation, get Pub. 553, Highlights of 1994 Tax Law Changes.
What Is the EIC?
The EIC is a special credit for certain workers. It reduces tax you owe. It may give you a refund even if you don't owe any tax. For 1995, the EIC can be as much as $2,094 if you have one qualifying child; $3,110 if you have more than one qualifying child; $314 if you do not have a qualifying child. See Who Is a Qualifying Child? later. But you cannot get advance EIC payments unless you have a qualifying child.
Who is Eligible To Get Advance EIC Payments?
You are eligible to get advance EIC payments if all three of the following apply:
1. You have at least one qualifying child.
2. You expect that your 1995 earned income and adjusted gross income will each be less than $24,396 (including your spouse's income if you expect to file a joint return).
3. You expect to be able to claim the EIC for 1995. To find out if you may be able to claim the EIC, answer the questions on page 2. If you expect to file Form 2555, Foreign Earned Income, or Form 255-EZ, Foreign Earned Income Exclusion, for 1995, you cannot claim the EIC.
How Do I Get Advance EIC Payments?
If you are eligible to get advance EIC payment for 1995, you may be able to get up to $105 a month added to your take-home pay. To get advance EIC payments, fill in the Form W-5 at the bottom of this page. Then, detach it and give it to your employer. If you get advance payments, you must file a 1995 Form 1040A or Form 1040.
You may have only one Form W-5 in effect with a current employer at one time. If you and your spouse are both employed, you should file separate Forms W-5.
This Form W-5 expires on December 31, 1995. If you are eligible to get advance EIC payments for 1996, you must file a new Form W-5 next year.
Note: You may be able to get a larger credit when you file your 1995 return. For details, see Additional Credit on page 2.
Who Is a Qualifying Child?
Any child who meets all three of the following conditions is a qualifying child:
1. The child is your son, daughter, adopted child, stepchild, foster child, or a descendant (for example, your grandchild) of your son, daughter, or adopted child.
Note: An adopted child includes a child placed with you by an authorized placement agency for legal adoption even if the adoption isn't final. A foster child is any child you cared for as your own child.
2. The child is under age 19 or a full-time student under age 24 at the end of 1995, or is permanently and totally disabled.
3. The child lives with you in the United States for more than half of 1995 (for all of 1995 if a foster child). If the child does not live with you for the required time because the child was born or died in 1995, the child is considered to have lived with you for all of 1995 if your home in the United States was the child's home for the entire time he or she was alive in 1995.
Note: Temporary absences such as for school, medical care, or vacation count as time lived with you.
Married child.-If the child is married at the end of 1995, the child is a qualifying child only if you may claim the child as your dependent or the following Exception applies to you.
Exception. You are the custodial parent and would be able to claim the child as your dependent, but the noncustodial parent claims the child as a dependent because-
You signed Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or a similar statement, agreeing not to claim the child for 1995, or
You have a pre-1985 divorce decree or separation agreement that allows the noncustodial parent to claim the child and he or she gives at lest $600 for the child's support in 1995.
Qualifying child of more than one person.-If the child is a qualifying child of more than one person, only the person with the highest adjusted gross income for 1995 may treat that child as a qualifying child. If the other person is your spouse and you expect to file a joint return for 1995, this rule doesn't apply.
Reminder.-You must get a social security number for a qualifying child born before 1995.
What If My Situation Changes?
If your situation changes after you give Form W-5 to your employer, you usually will need to file a new Form W-5. For example, you should file a new Form W-5 if any of the following applies for 1995:
You no longer have a qualifying child. Check "No" on line 2 of your new Form W-5.
You expect your filing status to be Married filing separately, you expect to be a qualifying child of another person, or you expect your earned income or adjusted gross income to be $24,396 or more. Check "No" on line 1 of your new Form W-5.
You no longer want advance payments. Check "No" on line 1 of your new Form W-5.
Your spouse files Form W-5 with his or her employer. Check "Yes" on line 4 of your new Form W-5.
Note: If you get the EIC with your pay and find you are not eligible, you must pay it back when you file your 1995 Federal income tax return.
How to Claim the EIC
If you have at least one qualifying child, fill in and attach Schedule EIC to your 1995 Form 1040 or Form 1040A. In addition to other information, the social security number of your qualifying child born before 1995 must be shown on Schedule EIC. To figure your EIC, use the worksheet in your 1995 Form 1040 or Form 1040A instruction booklet.
You may be able to claim a larger credit when you file your 1995 tax
return because your employer is not permitted to give you more than
$1,257 of the EIC in advance with your pay. You may also be able to
claim a larger credit if you have more than one qualifying child. But
you must file your 1995 tax return to claim any additional credit.
excerpted from material by the IRS, 1995
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