What’s New for Tax Year 2006

New with the EITC

New maximums

For Tax Year 2006, the maximum amount of EITC that a family can claim is:

• $4,536 for a family claiming two or more children as dependents
• $2,747 for a family claiming one child as a dependent
• $412 for a family claiming no children as dependents

Income amounts increase

Earned income amount. The maximum amount of income you can earn and still get the credit is higher for 2006. Filers may be able to qualify for the credit for 2006 if:

• They have more than one qualifying child and earn less than $36,348 ($38,348 if married filing jointly),
• They have one qualifying child and earn less than $32,001 ($34,001 if married filing jointly), or
• They do not have a qualifying child and earn less than $12,120 ($14,120 if married filing jointly).

Investment income amount. The maximum amount of investment income a filer can have in 2006 and still get the credit increases to $2,800.

Other new stuff

New option to split refunds between bank accounts

Beginning in 2007, a new refund option is available for most tax filers.  Filers for 2006 may elect to have their federal income tax refund automatically deposited into two or three accounts at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union). Individuals electing this split refund option must file Form 8888, “Direct Deposit of Refund to More Than One Account.”

Local tax sites can use this split refund option to encourage families to save a portion of their refund.  This can be a good way to encourage families to invest in an IDA, savings account, or to set aside funds for credit repair.

Telephone tax refund

The telephone tax refund is a one-time payment available on the 2006 federal income tax return, designed to refund previously collected federal excise taxes on long-distance or bundled services. It is available to anyone who paid such taxes on landline, wireless, or Voice over Internet Protocol (VoIP) service. 

Several recent federal court decisions have held that the tax does not apply to long-distance service as it is billed today, so the IRS is refunding the portion of the tax charged on long-distance calls.  In general, anyone who paid the telephone tax on their long-distance or bundled service may be eligible to request the refund on their 2006 federal income tax return. 

The IRS is making it easier for individual taxpayers by offering a standard refund amount between $30 and $60, so that taxpayers don’t need to gather old phone bills. Taxpayers who choose the standard amount will only need to fill out one line on their tax returns.  Using this amount may be the easiest way for taxpayers to get their refunds and avoid gathering 41 months of old phone records.

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