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Island Could Rake In $1 Billion From Federal Child Tax Credit


July 3, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Starting July 27, the U.S. Internal Revenue Service (IRS) will be mailing checks to thousands of families in Puerto Rico that filed federal income tax returns for the year 2002, according to Wesley M. Diaz, district manager of H&R Block in Puerto Rico.

"Those that get the checks, representing a tax credit of $1,000 per child, will be happy," said Diaz, though he "is disappointed because there are still too many families in Puerto Rico that aren’t aware of this benefit to which they are entitled or how to go about getting it."

H&R Block says it was consulted by the IRS as well as by the House Ways & Means Committee in preparing the legislation authorizing the Child Tax Credit (CTC). The original credit per child was $600 (CB April 3), but under the recent tax-cut bill passed by Congress and expected to be signed into law by President George W. Bush, the CTC increases to $1,000 per child, explained Diaz.

The House adjourned Friday without acting on the CTC bill as it had intended. Time simply ran out in the Senate, and Majority Leader Bill Frist said key negotiators in the Senate and the House hope to act on the bill when they return from the one-week recess on July 8. Frist said the intention is to get it done by July 25 so the rebate checks can start going out.

The credit’s strongest supporters are questioning whether good intentions will be enough to close the gap between the House and the Senate versions and want to see President Bush broker a compromise.

"Taxpayers in Puerto Rico are required to file a local Treasury Department [Hacienda] return regardless, but if the family has three or more children it can also file a federal return in order to be eligible to get the additional CTC," said Diaz. Pointing out that an IRS study determined that there are more than 100,000 families in Puerto Rico that are eligible for the CTC, Diaz said H&R Block "prepared tax returns for more than 40,000 families during the tax season ending April 30."

The firm experienced a 28% increase in filings over the previous year. "We fully expect that growth to continue as more Puerto Ricans become aware of their eligibility for this benefit," Diaz said.

Federal tax law has long provided a credit against taxes for each child in a family. During the Clinton administration, the law was amended to provide payments equal to the amount of the credit to workers whose income was too low to have an income tax liability, but subject to a few conditions.

First, the payments must make up the difference between the Earned Income Credit payments to low-income workers and the Child Tax Credit amount. Second, the payments are limited by the amount of payroll (Social Security and Medicare) taxes paid (7.65%). Third, the payments are limited to 10% of a worker’s income over $10,500.

"This ‘refundable credit’ [so called because it theoretically refunds payroll taxes] was extended to Puerto Ricans, although it only applies to those with three or more children because of the interplay between these payments and the Earned Income Credit payments," explained Jeffrey Farrow, co-chairman of the White House Inter-Agency Task Force on Puerto Rico during the Clinton administration.

Injection could reach $1 billion a year

"Using the H&R Block estimate that 100,000 families in Puerto Rico may be eligible for the payments, the potential for last year alone could have exceeded $150 million, and that was based on the $600 rate, which is now expected to be increased to $1,000 per child," said Farrow. Diaz of H&R Block said that "the benefit of the CTC to Puerto Rico could eventually reach $1 billion a year." (Simple math, however, indicates the number could reach as high as $3 billion.)

Farrow is critical of the government representatives of Puerto Rico in Washington collectively. "Calderon-administration representatives in Washington haven’t acted on these issues because the Puerto Rico Federal Affairs Administration [PRFAA] says it sees no stake for Puerto Ricans in the bill after talking to H&R Block," he said. "Congressional staffers involved in tax policy, however, insist it will apply to Puerto Ricans in the same way that it would apply to residents of the States."

Pointing to the increase in the proposed limit on the payment from 10% of income over $10,500 to 15%, Farrow said, "It would enable more people to obtain payments based on $1,000 per child vs. $600 and enable more people to gain benefit from the program."

Farrow was blunt in describing the failure of officials in the offices of the resident commissioner and PRFAA plus numerous other lawyers and lobbyists. "Their shocking incompetence makes you wonder how they reconcile their insistence that Puerto Rico is exempt from federal tax laws with the clear intent of presidents and the Congress of the U.S. to help poor families in the nation, including 100,000 eligible families in Puerto Rico," he said.

Some Washington observers feel that the Calderon administration may not like the program because Puerto Rico residents would have to file a federal tax return in order to get the payments and they view that as inconsistent with its claim of Puerto Rico’s tax autonomy. "Whatever way you look at it, it’s absolutely outrageous and shortsighted," said Farrow. "The net result is that thousands of poor families in Puerto Rico are being deprived of these funds along with the entire economy of Puerto Rico—and it could certainly use a shot or two in the arm right now."

This Caribbean Business article appears courtesy of Casiano Communications.
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