FEDERAL TAX INTERCEPT
10/98 Revised 10/17/06 Training Completed 10/31/06
The earned income tax credit (EITC) is a special Federal tax credit for people who work and have low-to-moderate income. The purpose of the credit is to reduce or eliminate the amount of Federal income tax that is owed to offset some of the increases in living expenses and social security taxes. If a non-custodial parent (NCP) meets the criteria to receive an earned income credit, the NCP can elect to receive part of the credit in advance or claim the credit when s/he files a Federal tax return.
The Office of Recovery Services/Child Support Services (ORS/CSS) is unable to determine if the NCP’s Federal tax refund includes an EITC at the time the tax refund is sent to CSS. The NCP may calculate and claim the earned income credit at the time his/her tax return is filed. The NCP has the option to request that the Internal Revenue Service (IRS) figure the amount of the EITC. If the IRS calculates the credit, the NCP will receive an IRS letter indicating the amount of EITC. CSS will likely intercept the EITC as part of the Federal tax refund.
The EITC is a means-based income credit. Therefore, at the NCP’s request, CSS will refund the amount of the credit or the Federal tax refund amount, whichever is less, to the NCP when the criteria listed below are met.
1. The Federal tax refund has been posted to the case.
2. The payment has not disbursed to the Non-IV-A custodial parent (CP).
3. The NCP requests a refund of the earned income credit and submits a copy of the Federal tax return including the EITC calculation letter from the IRS (if applicable), that indicates the amount of the earned income credit.
The fact that CSS intercepted a Federal tax refund in which the NCP qualified for an EITC does not mean that the tax refund was intercepted in error. Do not issue an advance refund to the NCP unless the advance refund criteria are met.
NOTE: There is no Federal law or requirement that requires us to refund the EITC. This is a Utah decision and applies only to Utah cases. There is no limitation on the time period in which an NCP can and request a refund of his/her EITC as long as the criteria are met above.
Procedures for Refunding the Credit
If the NCP requests a refund of an EITC amount and provides you with a copy of his/her Federal tax return and, if applicable, the EITC calculation letter from the IRS, for the year in which s/he is requesting the refund, take the steps listed below.
1. Using the NCP’s Federal tax return and, if necessary, the EITC calculation letter from the IRS, determine the amount of the EITC.
2. Determine the available Federal tax intercept payment amount by:
a. finding the total Federal tax intercept amount posted;, and,
b. subtracting any payments previously refunded by CSS to the NCP from that Federal tax refund intercept payment.
NOTE: If part of the original Federal tax intercept payment was sent to the NCP, determine that amount and subtract it from the earned income tax credit amount. Only refund the remainder of the EITC, not the original amount. For example:
o NCP files his Federal taxes – Head of Household. There is no injured spouse involved. He is going to receive a $6,164.00 refund.
o CSS intercepts $4,540.00.
o The EITC is $2,871.00.
o $6,164.00 (original refund amount) - $4,540.00 (CSS intercepted) = $1,624.00 (amount sent to NCP).
o $2,871.00 (EITC) – $1,624.00 (amount sent to NCP) = $1,247.00 (amount due NCP).
· CSS refunds $1,247.00 to NCP.
3. Compare the amount of the EITC to the available Federal tax intercept payment amount.
4. Promptly request a refund to the NCP of the EITC or the available intercept payment amount, whichever is less. If the NCP filed a joint Federal tax refund, make the refund payable to the NCP and spouse.
5. Document your actions in the case narratives.