Tax moves to make in January 2012
12 tax tips for 2012

Minimum wage increased in eight states but workers probably still EITC eligible

Eight states hiked their minimum wage rates today.

That means that lower-income workers in Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington are now pocketing a few more dollars each pay day.

How much more money? The National Employment Law Project says that the state minimum wage increases that took effect Jan. 1 range between 28 and 37 cents more per hour. And that comes to an extra $582 to $770 a year for a full-time worker.

8 states raise minimum wage 010112Because extra pay is always noteworthy, but especially so in these tough economic times, the eight states earn this week's By the Numbers recognition.

And what exactly does the minimum wage have to do with taxes?

More tax revenue: Well, more individual earnings obviously means that each state, and possibly the local treasurers in those eight jurisdictions, will get a bit more in tax collections.

Currently, 18 states and the District of Columbia have minimum wage rates above the federal level of $7.25 per hour. That comes out to just more than $15,000 per year for a full-time minimum wage earner.

The eight states that hiked their minimum wage pay rates today are among 10 that increase that pay level annually to ensure that real wages for low-paid workers don't fall further behind in purchasing power.

As for the other two inflation indexed states, Nevada indexes its minimum wage in July (expect the Silver State's rate to go up then) and Missouri announced that since its state minimum wage is lower than the federal rate, that $7.25 per hour pay schedule will continue as the base for Show Me State workers.

Earned Income Tax Credit: The federal government also can help the millions of minimum wage workers, including those who got a bit of a raise today, keep some of their money out of IRS hands.

Workers who meet IRS earnings limits can claim the Earned Income Tax Credit, or EITC. This tax break was created in 1975 as a way for lower-income workers to offset some of the Social Security taxes that are taken out of their paychecks.

Since it's a credit, the EITC allows qualifying taxpayers to offset their tax bills dollar for dollar. Even better, it's refundable, meaning an eligible individual could get the credit back as a refund.

Generally, income and family size determine a taxpayer's eligibility and the EITC amount a taxpayer can receive.

The maximum amount of the credit for Tax Year 2011 is $5,751. The table below gives you an idea as to whether you, or someone you know, might qualify for the EITC.

EITC 2011 income limits and credit amountsClick image for a larger view.

A common misconception is that you have to have kids to apply for the EITC, but as the chart indicates, taxpayers without children also can claim the EITC. They just won't get as much of a tax credit.

There also are special rules for individuals receiving disability benefits and members of the military.

You also can use the IRS' interactive EITC Assistant to see if you can claim the tax credit.

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