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Federal and state-level tax credits seem to be somewhat of a secret in New Mexico. Every year, thousands of New Mexicans who are eligible for a number of tax credits fail to claim them, leaving millions of dollars unclaimed.
According to one 2007 estimate, roughly 30,000 New Mexico working families were eligible for the Earned Income Tax Credit and failed to claim it. That works out to somewhere between $74 million and $136 million in lost payments.
This isn’t so much a secret as it is a lack of information among taxpayers and tax preparers. For example, even those who don’t pay income tax, and/or receive cash assistance in their income, may still qualify for refundable state- and federal-level tax credits.
The federal Earned Income Tax Credit (EITC) is available to families who have an annual income of less than a $38,000, or to individuals who make less than $13,000. In addition, the New Mexico Working Families Tax Credit (WTFC) refunds 10 percent of the EITC amount on the state tax return form. Low-income families can receive a maximum of $4,536 for the EITC, and $453 for the WTFC.
So, why do so many New Mexicans leave this federal and state-level money behind? “A lot of families think that tax benefits don’t apply to them because they live below the income tax threshold, when, in fact, these specific tax credits are designed to help low-income families,” says Gerry Bradley, research director of New Mexico Voices for Children.
While the EITC and WFTC are available only to those who work, the New Mexico Low-Income Comprehensive Tax Rebate (LICTR) is more broadly available. The LICTR is designed to offset sales taxes, which tend to take up a larger proportion of a low-income family’s wages. “Low-income families tend to have to spend their entire paycheck on day-to-day necessities, while those with higher incomes are more likely to have the ability to set some aside in a savings account,” said Bradley.
Parents can also take advantage of several tax credits. In addition to the federal Child Tax Credit that’s worth up to $1,000 per child, some filers may be eligible for the federal Dependent Care Tax Credit, which returns up to $2,100. New Mexico residents may also qualify for the state Child Day Care Credit, a refundable credit that can be worth as much as $1,200 to help pay for child care costs.
“It essentially comes down to a lack of information on the taxpayer’s part, or the lack of proficiency of the tax preparer,” says Bradley. “More New Mexicans need to claim their rightful credits so they can work as they were intended.”
Aise from finding a preparer who is versed in the various tax credits, low-income families are encouraged to forgo tax refund anticipation loans -– known as RALs. These loans generally come with high interest rates, which can eat up the entire value of the credit, and can speed up the refund by as little as a week.
One way to avoid RALs is to take advantage of the federal government’s Advance EIC, which allows taxpayers who expect to qualify for the EITC and have at least one qualifying child to receive part of the credit in each paycheck during the year they qualify for it. To sign up for Advance EIC, you must complete the five questions on the back of Form W-5, Earned Income Credit Advance Payment Certificate, which should be available through your employer.
Another way to avoid RALs -– and the fees associated with having your return prepared by a private company -– is to take advantage of one of the many free tax preparation services. TAX HELP New Mexico has been providing free tax assistance to New Mexico families and senior citizens for 34 years. Because all filing is electronic, taxpayers receive their income within a week, and many sites offer services in Spanish and Navajo. Contact TAXHELP New Mexico at 1-888-212-4TAX, or if you’re in Albuquerque, 505-244-4TAX.
The IRS also offers the VITA Program for low- to moderate-income families. VITA sites are generally located at community and neighborhood centers, libraries, schools, and shopping malls. Most locations also offer free electronic filing. To locate the nearest VITA site, call 1-800-829-1040.
The tax credits offered by the state are designed to validate a family’s hard work and help lift them out of poverty. New Mexicans must take advantage of these tax credit opportunities this tax season. In 2006, those who used the free TAXHELP New Mexico received an average refund of $1,600.
Leslie Bowman is an intern with the Albuquerque-based nonprofit New Mexico Voices for Children.
