Wisconsin Works (W-2)
There are a number of federal and state tax credits available to eligible W-2 working families that can reduce their tax burden and increase income.
Federal and Wisconsin Earned Income Tax Credits
The Earned Income Tax Credit (EITC) is available to working individuals who have low or moderate income. To qualify for EITC, individuals must have earned income from employment or self-employment. When the EITC exceeds the amount of taxes owed, this results in a tax refund. To qualify, individuals must meet certain requirements and file a tax return, even if they do not owe any tax or are not required to file.
Note: W-2 paid placement benefits (i.e. Community Service Job [CSJ], W-2 Transition [W-2 T], At Risk Pregnancy [ARP], and Custodial Parent of an Infant [CMC] payments) are not considered earned income and are not subject to income tax credits. However, employment outside of W-2 and any pay received from an employer by a W-2 Transform Milwaukee Jobs participant during 2015 should be applicable for earned income credits.
Federal tax refunds will not disqualify working families from W-2 because it is disregarded income. All Federal tax refunds will not be counted as income or as an asset for 12 months when determining an individual’s eligibility or benefit amount for W-2, Job Access Loans, Emergency Assistance, Transform Milwaukee Jobs, Child Care, FoodShare, BadgerCare Plus, Medicaid, and Caretaker Supplement.
Working individuals may be eligible for both Wisconsin and federal tax credits if they worked any time in 2015. They may be able to get a combined total of state and federal credits up to:
- $8,364 if they have three or more children and family income less than $47,747 (single), $53,267 (married).
- $6,158 if they have two children and family income less than $44,454 (single), $49,974 (married).
- $3,493 if they have one child and family income less than $39,131 (single), $44,651 (married).
- $503 if they do not have any children and family income less than $14,820 (single), $20,330 (married).
For more information on the federal EITC, please visit https://www.irs.gov/Credits-&-Deductions/Individuals/Earned-Income-Tax-Credit or http://www.irs.gov/publications/p596/index.html. For more information on the Wisconsin EITC, please visit http://www.revenue.wi.gov/individuals/eic.html.
The Internal Revenue Service has an interactive tax assistant that assists individuals with determining if they can claim the EITC and with calculating the amount of the credit. Please visit https://www.irs.gov/Credits-&-Deductions/Individuals/Earned-Income-Tax-Credit/Use-the-EITC-Assistant.
Wisconsin Homestead Credit
The Wisconsin Homestead Credit (HC) is available to low income Wisconsin residents who rent or own their home. The credit may lessen the impact of property taxes and rent on individuals with lower incomes. Working individuals may be eligible for up to a maximum tax credit of $1,168 if they were a Wisconsin resident for all of 2015 and can provide copies of rent receipts (if renting) or property tax receipt (if own home) and their family income was less than $24,680 for 2015.
The following terms apply to individuals who received a W-2 payment (Community Service Job [CSJ], W-2 Transition [W-2 T], At Risk Pregnancy [ARP], or Custodial Parent of an Infant [CMC]) in tax year 2015:
- If an individual received any amount of a W-2 payment in 2015 for any month in 2015, the individual’s property taxes and rent are reduced by one-twelfth for each month the individual received payment.
- If an individual received a W-2 payment for all 12 months of 2015, the individual is not eligible for the HC.
For more information on the HC, refer to the Wisconsin Department of Revenue website at http://www.revenue.wi.gov/faqs/ise/home.html.
Federal Child Tax Credit
The Child Tax Credit (CTC) is designed to assist working families by offsetting the cost of raising children and is available to families with a qualifying child. Working families may be eligible for up to maximum federal tax credit of $1,000 per dependent child. If the amount of the CTC is greater than the amount of income tax a family owes, the family may receive part or all of the difference as an additional CTC.
The IRS has an interactive interview that assists families with determining if they are eligible for the CTC. Please visit https://www.irs.gov/uac/Is-My-Child-a-Qualifying-Child-for-the-Child-Tax-Credit%3F to take the interactive interview or visit http://www.irs.gov/publications/p972/ar02.html for more information about the CTC.
Filing Taxes for Previous Years
Individuals who have never filed or have not filed their returns in past years may file for tax credit refunds for the last three years (i.e. 2012, 2013, and 2014). If applicable to their situation, they would still be eligible to receive EITC and CTC credits for those previous years.
For more information on how to file a tax return for a prior year, please visit https://www.irs.gov/Credits-&-Deductions/Individuals/Earned-Income-Tax-Credit/Claiming-EITC-Prior-Years or call the IRS Tax Help Line at 1-800-829-1040.
TAX PREPARATION RESOURCES
Volunteer Income Tax Assistance
The Volunteer Income Tax Assistance (VITA) program is available to low income individuals in preparing their tax returns. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals in local communities. VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping centers, churches, retirement homes, and other convenient locations. Most VITA sites are open from February 1 through April 15.
To find a VITA site, call 211 or visit http://irs.treasury.gov/freetaxprep/.
Fees and Commercial Tax Preparation
Some tax preparation companies offer money up-front to individuals seeking tax returns, often based only on the last paycheck of 2015. News articles indicate that some of these companies can charge very high interest (e.g. 30% up to 60%) rates and fees. As a result, individuals can lose much of their tax refund.
W-2 participants should be knowledgeable about these types of tax preparation services, however, they should not to sign anything without fully understanding the terms and conditions of the contract.