Tax Credits For Working Families
What Are Tax Credits?
According to the IRS, tax credits are an amount you subtract from the amount of tax you owe. There are two types of tax credits:
- A nonrefundable tax credit means you get a refund only up to the amount you owe.
- A refundable tax credit means you get a refund, even if it’s more than what you owe.
There are two important refundable credits we’ll describe below, the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC)
What is the EITC?
According to the IRS, the Earned Income Tax Credit (EITC) is a refundable tax credit that helps low- to moderate-income workers and families. If you qualify, you can use the credit to reduce the taxes you owe – and maybe increase your refund. In Colorado, people can receive both the Federal EITC and Colorado’s state match of the Federal EITC.
What is the CTC?
The Child Tax Credit (CTC) is a refundable tax credit meant to help working families offset the costs of raising children. Filers with children can receive up to $2,000 per child under the age of 17. If the credit exceeds taxes owed, families may receive up to $1,600 per child as a refund. Other dependents—including children ages 17–18 and full-time college students ages 19–24—can receive a nonrefundable credit of up to $500 each. The maximum amount in Colorado is $1,200.
Why are The EITC & CTC Important?
You could be leaving money on the table when you file your taxes. The EITC and CTC are also powerful anti-poverty measures.
- In 2018 the Federal EITC pulled 5.6 million people out of poverty including about 3 million children, and in 2019, it boosted the incomes of 9 million women of color.
- The CTC lifted approximately 4.3 million people out of poverty in 2018, including about 2.3 million children, and lessened poverty for another 12 million people, including 5.8 million children.
The EITC and CTC are powerful ways to put money in the pockets of working families that they can use for whatever they need or to offset what they owe when they file their taxes. You can check out our factsheets below for more on the benefits of the EITC and CTC. At CFI, we look to further expand the impact and eligibility of these tax credits.
Federal Child Tax Credit 2021 Advance Payments
Important changes to the Child Tax Credit will help many families get advance payments of the credit starting in the summer of 2021. The IRS will pay half the total credit amount in advance payments beginning July 15, 2021 on a monthly basis through December 2021. The other half can be claimed when you file your 2021 income tax return. These changes apply to tax year 2021 only.
What Do I Need To Do To Receive The Advance Payments?
Generally, nothing. If you are eligible to receive advance Child Tax Credit payments based on your 2020 tax return or 2019 tax return (including information you entered into the Non-Filer tool for Economic Impact Payments on IRS.gov in 2020), you generally will receive those payments automatically without needing to take any additional action.
For more information on the federal Child Tax Credit Advance Payments visit the IRS’ Q&A page.
Colorado Earned Income Tax Credit Expansions
Alongside partners and legislators, we at the Colorado Fiscal Institute worked in 2020 and 2021 to pass legislation at the state capitol that would expand Colorado’s Earned Income Tax Credit (EITC) from a 10% match of the Federal credit to a 25% match. We funded these powerful credits by closing inequitable and ineffective tax loopholes that were primarily benefitting the wealthy or not fulfilling their intended purpose.
Expanded Eligibility For ITIN Filers And Those 18 And Up
In addition, we expanded eligibility for the EITC state match to everyone 18 and up, and included folks with Individual Taxpayer Numbers (ITIN) as eligible to receive the state match for the FIRST time. Unfortunately, ITIN filers do not currently qualify for the Federal EITC.
What Is An ITIN Filer?
ITIN Filers are folks who pay taxes but do not have social security numbers. Many of these individuals are immigrants who pay taxes into the public services we all benefit from like public education, roads, and local services. If you pay taxes with an ITIN in Colorado, you are eligible for the state EITC with no consequence to your immigration status.
Colorado Child Tax Credit Match
The state version of the Child Tax Credit was passed into law in 2013, but up until 2021, hadn’t been funded. During the 2021 legislative session, the Colorado Fiscal Institute alongside partners and legislators finally funded our Colorado Child Tax Credit match.
Colorado Child Tax Credit Eligibility
As of 2021 the state CTC goes to families with children younger than 6 to help with child care and other costs that pose financial burdens prior to elementary school years. ITIN filers are also eligible for Colorado’s Child Tax Credit.
How Do I Claim The Credits?
- If you are filing with an ITIN, be sure that your ITIN is up to date. You can find more information here.
- Find free tax preparation.
- Collect all necessary tax documents
- Ask your tax preparer if you are eligible for the EITC and CTC
- If you qualify, you’ll receive either a larger refund or, if you owe taxes, a reduction in how much you owe.
How Can I Get The Word Out?
The biggest reason individuals don’t claim the EITC and CTC on their tax returns is because they don’t know about it. Below, we have posted resources you can share, flyers you can print or send to those you know, and tax help resources. You can also follow us on social media to stay up to date on tax credit resources and share them with your networks. Feel free to also share this resource page with others who could benefit from claiming these powerful tax credits.
Free Tax Help & Resources
Get Ahead Colorado is a trusted partner of ours that provides resources to families who qualify for the Earned Income Tax Credit and other resources that help them get ahead.
Tax Help Colorado is another trusted partner of ours dedicated to providing free tax filing assistance to families earning less than about $57,000 a year, saving them money, while receiving the best service possible.
GetYourRefund.org provides free tax filing help by partnering with IRS-certified Volunteer Income Tax Assistance (VITA) sites to provide tax filing assistance to families earning less than $66,000 a year.
Informational Flyers – These flyers go over steps on how ITIN filers and citizens can see if they qualify for the EITC. Feel free to share this with folks in your community this tax season! Translated versions are included.
