Working families will see a boost in their Earned Income Tax Credit when they file their 2009 tax return.
Families with three or more children will see the maximum EITC increase by $649 to $5,657, according to Brenda Procter, a University of Missouri Extension personal finance expert. Married couples will be eligible for the credit at incomes up to $48,250.
Procter said the changes will be a welcome relief to families struggling through the economic crisis.
“Without those income supports, particularly for families at lower income levels, it might not be possible to remain employed and in the work force because they can’t afford basic things like child care and transportation to show up every day to a low-wage job,” she said.
An estimated 650,000 households and 1.4 million children will benefit from the changes to EITC for the 2009 and 2010 tax years.
“In many cases, if these families were not getting the EITC, they would be getting other public program assistance,” Procter said. “The Earned Income Tax Credit is not a welfare program. It’s a tax benefit tied to working.
“The EITC kicks in when someone earns their first dollar and increases rather rapidly,” she said. “It plateaus and gradually phases out as incomes rise to the point that the wage earner can make ends meet without the supplement to their income.”
Last year, MU Extension specialists and community volunteers assisted 3,417 households in filling out their income tax forms. Those families received $3.5 million in tax refunds, including earned-income tax credits. The estimated impact of MU Extension’s MoTax Initiative was $10.5 million statewide.
“Low-income families tend to spend every penny they make because they are struggling to get by, so the economic impact may well be greater than with other tax credits we think of as economically beneficial,” Procter said.
People who receive the ETIC spend approximately 90 percent on basic necessities and are less likely to spend outside their community than families with greater resources and mobility, so the additional income has a targeted impact on the local community, she said.
MoTax not only provides free tax return preparation and electronic filing, but also offers one-on-one financial education to clients.
“Providing education at a time when families know their tax refunds are on the way is much more effective than providing education at other times of the year when people have little or no reserves to plan with,” Procter said.
For more information from MU Extension on taxes and personal finance, see http://missourifamilies.org/money/.