Tax Credits for Low-Income Families

Each year, low income tax credits change slightly. You may find the earning threshold goes up or down, and you may find the types of credits available also change. This will be particularly true in 2011 as a number of stimulus-era programs are set to expire. However, there are still a number of programs available to help you retain the majority of your income if you qualify based on your earning threshold. If you wish to get the maximum return and deduction on your income, consider federal and state programs aimed to ease the tax burden for low income families.

Earned Income Tax Credit

Perhaps the most well-known tax credit for a low income family is the Earned Income Tax Credit (EITC). This credit is given at the federal level for families below an income threshold; the threshold varies by year. In 2011, the threshold is $14,570 with two children. The credit, here the maximum, is $5,036 in 2011. This maximum credit will vary by year and income. If a family continues to increase its income, the credit goes down proportionally. To claim this tax credit, you must report your income and file for the credit when you file your taxes.

Making Work Pay

The Making Work Pay tax credit of $400 to $800 for low-income families will be phased out with the expiring American Recovery and Reinvestment Act. As of 2011, you will no longer be eligible to claim this credit. If you feel you were eligible for the credit in 2009 or 2010 and did not claim the credit, speak to your accountant about refiling a past return. 

Child Tax Credit

You can reduce your taxable income by $1,000 for each dependent child under the age of 17. This child tax credit begins to phase out as your income increases. For most taxpayers, the phase out is $75,000. For married couples filing jointly in 2011, the phase out will be $110,000. For married couples filing separately, the phase out occurs at $55,000. 

State Income Tax Credits

Aside from federal programs, your state may offer income tax credits to low earners. Consider applying for these state credits or grants in order to lighten your tax load. For example, some states offer credits to pay for child care, funeral costs and medical expenses for low income families. Always research programs or talk to your accountant about large expenses in order to determine if they may qualify for a tax break.

Student Loan Interest 

Interest on a number of loans, including a home loan, is tax deductible for all income levels. However, with student loan interest, the deduction only applies to individuals earning less than $75,000 for 2011. If you have student loans of any type, including federal, private, undergraduate or graduate, you may be eligible to deduct the interest on the loan from your taxable income annually. The same is true if you are paying the loans for a dependent. The student loan must be for qualified secondary education. If you take a consolidation or modification loan, you may lose your ability to write off the interest.