David R. Williams

WASHINGTON, D.C. — As the clock ticks down to April 15, working families who earn less than $35,000 should take a moment to review the rules for the Earned Income Tax Credit (EITC). For eligible taxpayers, the credit can mean bigger tax refunds.

A recent study by the Brookings Institution confirmed what we at the Internal Revenue Service already knew. People who qualify for the EITC are a diverse group. The EITC taxpayers are almost evenly divided between urban and rural communities. It could be you.

The Earned Income Tax Credit was created in 1975 as an offset for other federal taxes paid by low-income workers. Initially, it was limited to people with children. In 1993, it was expanded to low-income workers without children.

But we find that folks often make errors. The law is complicated. That's why we're encouraging everyone to review the rules. Also, we're providing resources to help taxpayers get the information they need to prevent mistakes.

KNOW THE RULES

We are doing what we can to make it easier and to make more help available. But taxpayers should carefully study the rules. Don't guess if you are eligible, know. Here are some basic guidelines to get you started.

This year, the maximum credit is $4,204 for a family with two or more qualifying children, $2,547 for a family with one qualifying child and $382 if there are no qualifying children.

For the 2003 tax year, income limits have increased. Taxpayers must earn less than $33,692 if they have two or more qualifying children, less than $29,666 with one qualifying child or less than $11,230 if there are no children. Income limits are $1,000 higher if a married couple files jointly.

If you meet those income limits, it may pay for you to look at other EITC rules. Those eligibility requirements are available at many places. You should seek out help if necessary.

HELP IS AVAILABLE

The IRS has formed partnerships with 180 community-based groups. In turn, some of these groups are operating the 14,000 volunteer sites around the country where low-income taxpayers can have their returns prepared for free. The locations of these sites are generally published in local newspapers.

If you have computer access, you also can visit www.irs.gov. Our popular Web-site has an entire page devoted to the EITC. For tax professionals, there also is a new EITC toolkit at www.eitcfortaxpreparers.com.

Taxpayers and tax professionals also can order helpful publications such as Publication 596, Earned Income Credit, by calling 1-800-829-3676 or download publications from the IRS Web site.

AVOID COMMON ERRORS

Most EITC errors fall into four main areas: the qualifying child, misstating income, incorrect filing status and incorrect Social Security number.

To claim the credit using a child, the child must meet certain relationship, age and residency tests and have a valid Social Security number.

— The relationship test: The child can be your son, daughter, adopted child, grandchild, or stepchild. The child also can be your foster child, sibling, niece or nephew if you care for that child as you would your own child.

— The age test: The child must have been, at the end of 2003, under age 19, a full-time student under age 24 or any age if permanently and totally disabled.

— The residency test: The child must have lived with you in the United States for more than half of the tax year.

Do not overstate or understate your income. Do not use the filing status of single if you are married. Do not use the head of household filing status unless you meet all its requirements. Double check your Social Security numbers.

USE A REPUTABLE TAX PREPARER

Approximately 67 percent of EITC tax returns are prepared by a third party. These returns contain the same number of mistakes as those returns prepared by taxpayers themselves. So, seek out a reputable tax professional. And if a tax preparer makes you promises that sound too good to be true, they probably are. Remember, you are responsible for your tax return regardless of who prepares it.

CONSIDER FREE FILE

On its Web site, the IRS offers a free tax preparation and electronic filing program called Free File. The service is offered by a consortium of tax software preparation companies. These companies set their own criteria. There are several offers for low-income taxpayers. If you prepare your own taxes, check out Free File. It's fast, accurate — and free. David R. Williams is the IRS Director for the Earned Income Tax Credit.