Kilili: Plan now to file for Earned Income Tax Credit

Income tax filers in the Marianas will be eligible to receive the Earned Income Tax Credit when they file their CNMI 1040 for 2021 in the coming weeks. The maximum credit for 2021 is $6,728.

Delegate Gregorio Kilili C. Sablan (Ind-MP) was able to include full and permanent federal funding for the tax credit in the American Rescue Plan Act last year, a legislative goal he first set in 2015 with the introduction of H.R. 4390.

Rep. Tina E. Sablan (D-Saipan) completed the tax puzzle with enactment of her bill repealing a 100% tax on the Earned Income Tax Credit imposed by the Legislature in 1998.

The Commonwealth Department of Finance has estimated the EITC, as it is called, will put $25 million into the pockets of lower income wage-earners in the Marianas yearly.

“Now that Marianas taxpayers will once again be able to receive the earned income tax credit,” Delegate Sablan said, “I want to be sure that everyone who is eligible will know what they need to do to obtain this substantial monetary benefit.

“We also included in the American Rescue Plan Act up to $50,000 annually for the Commonwealth government to educate taxpayers on how to collect the earned income tax credit,” he added. “I hope the Department of Finance will put that money to good use.”

What is the Earned Income Tax Credit?
The Earned Income Tax Credit is an offset against taxes owed. A taxpayer who owes $100 in taxes and has a $70 credit would only have to pay $30.

The EITC is also refundable. This means that any amount of the credit not used to offset taxes owed is paid directly to the tax filer. If no taxes are owed, the entire EITC is paid to the tax filer. In this respect, the EITC is the same as the child tax credit, which was also made fully refundable for 2021 by the American Rescue Plan.

How much each taxpayer receives in EITC depends on several factors including their age, marital status, number of dependents, and income. Single taxpayers without children, for instance, only qualify if their adjusted gross income in 2021 is less than $21,430. For a married taxpayer with three or more children the adjusted gross income limit is $57,414.

Adjusted gross income (line 11 on the CNMI 1040) is the total of wages, interest, retirement, and other income minus educator expenses, student loan interest, and other allowable deductions.

Who is eligible?
• There are eight general criteria for eligibility for the EITC:

• The taxpayer must file an income tax return.

• The taxpayer must have earned income.

• The taxpayer must meet certain residency requirements.

• The taxpayer’s children must meet relationship, residency, and age requirements to be considered qualifying children for the credit.

• Childless workers who claim the credit must be between ages 25 and 64.

• The taxpayer’s investment income must be below a certain amount.

• The taxpayer must not have previously fraudulently claimed the EITC.

• The taxpayer must provide the Social Security number for themselves, their spouse, if married, and any children for whom the credit is claimed.

“That first criterion is very important,” Delegate Sablan said. “Even if you have earned so little that you might not ordinarily have to file an income tax return, this year and going forward you will want to file so you can collect the Earned Income Tax Credit.”

Delegate Sablan also underscored the need for Social Security numbers for any dependents who are claimed under the EITC. “Not everyone rushes out to get their child a Social Security number as soon as they are born. But to get the EITC you must have that important form of identification.”

Currently, the Social Security office on Saipan does not accept walk-ins. The office can be called at 1-855-616-6449 to arrange for original verifying documents to be mailed in or dropped off for processing. Delegate Sablan said all the congressional offices—on Saipan, Tinian, and Rota—can help constituents with Social Security card applications.

Some people might also be concerned about residency or citizenship requirements. “If you earned income in the Marianas and are required to file an income tax return here, you are a tax resident and eligible for the EITC, if you meet all the other criteria,” he said.

What is the Earned Income Tax Credit?
Taxpayers in the Marianas once received the Earned Income Tax Credit just like eligible Americans nationwide. In 1998, however, the CNMI Legislature decided the program was too costly and enacted Public Law 11-25, placing a 100% tax on the earned income tax credit, effectively killing this anti-poverty program.

Shortly after passage of the American Rescue Plan, Rep. Tina Sablan introduced legislation that repealed the 100% tax. Rep. Sablan’s bill was enacted as Public Law 22-03 in June 2021 clearing the way for taxpayers to begin collecting EITC refunds again when they file their taxes in the weeks ahead. (PR)