Lower-income workers urged to seek tax credit

~ Qualified taxpayers get a refund when the credit exceeds the amount of taxes owed.

WASHINGTON -- Millions of lower-income working people are missing out on substantial tax refunds, the head of the Internal Revenue Service said Thursday as he promoted a tax credit to help them.

The earned income tax credit is "the largest means-tested benefit program in the country. It lifts millions out of poverty every year," IRS commissioner Mark W. Everson said.

About one-fifth to one-quarter of people who qualify for the credit do not apply, he said. The credit was worth up to $4,536 in 2006 for a family with two or more children.

The IRS said those include people with limited English skills, rural residents, nontraditional families and the disabled poor.

The credit was created in 1975 in part to help lower-income working people offset the burden of Social Security payroll taxes. Qualified taxpayers get a refund when the credit exceeds the amount of taxes owed. Those who do not owe taxes also qualify but must file a return.

For the 2006 tax year, the income limits are $36,348 for families with two or more children, or $38,348 if married and filing jointly. The ceiling is $12,120, or $14,120 with joint filing, for taxpayers without children.

In the 2005 tax year, 22.2 million tax returns claimed $41.4 billion from the credit.

Everson joined Treasury Secretary Henry Paulson and representatives of the National League of Cities, the United Way of America and other business and advocacy groups at the start of a campaign to promote awareness of the credit.

Paulson said the credit helps "people who are often on the first step of the economic ladder, gaining the experience and skills to land a better job and earn a higher income in the future."

Everson said a focus this year is helping people with disabilities. He said those who think they may qualify for the credit can visit 12,000 free tax preparation sites nationwide.

Greater use of the credit, he said, could reduce the market for refund anticipation loans. These are cash advances offered by tax preparers that allow customers to immediately take home expected refunds, The payout, however, sometimes carries high interest rates and fees.

'Predatory' loans

"We think these loans are predatory. I'd like to see them go away," Everson said.

In the past, the credit has been cited as a source of fraud: taxpayers claiming children who do not exist or whom they no longer take care of. Everson said that getting people to apply through free tax preparation sites or volunteer tax counselors will help assure that people comply with the rules.

The Bank of America Charitable Foundation said it was giving $500,000 in grants to two statewide and 31 local United Way chapters to assist families eligible for the credit.

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On the Net:

Internal Revenue Service: http://www.irs.gov/