Hurricane Katrina: EIC and Refundable Child Credit

Taxpayers who claimed the earned income credit (EIC) and refundable child credit on their 2004 Federal income tax returns may be eligible to use their 2004 earned income to calculate these credits for 2005; see Katrina Emergency Tax Relief Act of 2005 Section 406 and JCX-69-05 (9/22/05), p. 37. To qualify:

• The taxpayers earned income in 2005 must be less than it was in 2004.

• The taxpayer must have been living in one of the following places on Aug. 25, 2005:

1.  A Federal Emergency Management Agency (FEMA)-designated individual assistance area; see Exhibit 1.

2.  An area designated by FEMA only for public assistance, but the taxpayer has been displaced from his or her home; see Exhibit 2.

Deciding to base the calculation of these credits for 2005 on 2004 earned income will not affect how total income for 2005 is calculated.

Note: If a taxpayer and his or her spouse are filing a joint Federal income tax return, only one spouse needs to have been living in the Hurricane Katrina disaster area (see Exhibit 3), to base 2005 earned income and refundable child credits on 2004 earned income. When calculating these credits for 2005, taxpayers can also use both spouses earned income from 2004, even if only one of them was located in the Hurricane Katrina disaster area.

From Linda Gurene, San Antonio, TX