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EITC – Easily Find Out If You Qualify

The earned income tax credit benefits working individuals and families with low to moderate incomes. EITC can lower a taxpayer’s taxes, and even result in a refund. The IRS has an easy questionnaire on its website where you can find out if you qualify before you file.

Use the IRS form to find out if you qualify

To take advantage of this credit, taxpayers must file a tax return and claim the credit. They should do so even if they don’t owe tax and aren’t required to file. EITC can be worth up to $6,557 for tax year 2019.

Taxpayers should first find out if they qualify for the credit. Here are some things for taxpayers to consider:

•Major life events may cause taxpayers to move in and out of eligibility for the credit from year to year. Because of this, it’s a good idea for people to find out if they qualify.
•Eligible taxpayers must have earned income from working for an employer or from running or owning a business or farm. They must also meet basic rules.
•Taxpayers without children may also qualify for EITC.
•Taxpayers can’t claim EITC if their filing status is married filing separately.
•Taxpayers must have valid Social Security numbers for themselves, their spouse, and any qualifying child listed for the credit on their tax return.

Before claiming the credit, taxpayers should also learn the EITC rules:

•Taxpayers may be married or unmarried. If married, they must file a joint return.
•Those who claim the credit without a qualifying child must meet rules for age, residency and dependency.
•For a child to qualify, they must live with the taxpayer for more than six months of the year.
•In addition, the child must meet rules for age, relationship, support, citizenship and joint return.
•Special rules apply for members of the U.S. military serving in a combat zone.

Get Ready for Taxes: Important things to know about tax credits

With the tax filing season quickly approaching, the Internal Revenue Service recommends taxpayers take time now to determine if they are eligible for important tax credits.

This is the second in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS recently updated its Get Ready page with steps to take now for the 2020 filing season.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for working people with low to moderate incomes who meet certain eligibility requirements. Because it’s a refundable credit, those who qualify and claim EITC pay less federal tax, pay no tax or may even get a tax refund. EITC can mean a credit of up to $6,557 for working families with three or more qualifying children. Workers without a qualifying child may be eligible for a credit up to $529.

To get the credit, people must have earned income and file a federal tax return — even if they don’t owe any tax or aren’t otherwise required to file.

Taxpayers can use the EITC Assistant to find out if they are eligible for EITC, determine if their child or children meet the tests for a qualifying child and estimate the amount of their credit.

Child Tax Credit

Taxpayers can claim the Child Tax Credit if they have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,400 of that amount can be refundable for each qualifying child. So, like the EITC, the Child Tax Credit can give a taxpayer a refund even if they owe no tax.

The qualifying child must have a valid Social Security number issued before the due date of the tax return, including extensions. For tax year 2019, this means April 15, 2020, or if a taxpayer gets a tax-filing extension, Oct. 15, 2020.

The amount of the Child Tax Credit begins to reduce or phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly.

Credit for Other Dependents

This credit is available to taxpayers with dependents for whom they cannot claim the Child Tax Credit. These include dependent children who are age 17 or older at the end of 2019 or parents or other qualifying individuals supported by the taxpayer.

Publication 972, Child Tax Credit, available now on IRS.gov, has further details and will soon be updated for tax year 2019.

Education Credits

Two credits can help taxpayers paying higher education costs for themselves, a spouse or dependent. The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are claimed on Form 8863, Education Credits. The AOTC is partly refundable.

To get either credit, the taxpayer or student usually must receive Form 1098-T, Tuition Statement, from the school attended. Some exceptions apply. See the instructions to Form 8863 for details.

Interactive Tax Assistant

The IRS urges taxpayers to use the agency’s Interactive Tax Assistant (ITA) to help determine if they can claim any of these credits. The ITA also provides answers to general questions on filing status, claiming dependents, filing requirements and other topics.

Start with IRS.gov for help that includes tools, filing options and other services and resources. Taxpayers increasingly use IRS.gov as their first resource for tax matters. Information in languages other than English is available under the language tab on IRS.gov. 

Filing electronically is easy, safe and the most accurate way to file your tax return. There are a variety of free electronic filing options for most taxpayers including using IRS Free File for taxpayers with income below $66,000, or Fillable Forms for taxpayers who earn more. Taxpayers who generally earn $56,000 or less can have their return prepared at a Volunteer Income Tax Assistance site. Tax Counseling for the Elderly sites offer free tax help for all taxpayers, particularly those who are 60 years of age and older.

The earned income tax credit can put money in taxpayers’ pockets

Earned Income Tax Credit

The earned income tax credit benefits working people with low-to-moderate income. Last year, the average credit was $2,445. EITC not only reduces the amount of tax someone owes, but may also give them a refund, even if they don’t owe any tax at all.

Here are a few things people should know about this credit:

  • Taxpayers may move in and out of eligibility for the credit throughout the year. This may happen after major life events. Because of this, it’s a good idea for people to find out if they qualify.
  • To qualify, people must meet certain requirements and file a federal tax return. They must file even if they don’t owe any tax or aren’t otherwise required to file.
  • Taxpayers qualify based on their income, the number of children they have, and the filing status they use on their tax return. For a child to qualify, they must live with the taxpayer for more than six months of the year.

Here’s a quick look at the income limits for the different filing statuses. Those who work and earn less than these amounts may qualify.

Married filing jointly:

  • Zero children: $21,370
  • One child: $46,884
  • Two children: $52,493
  • Three or more children: $55,952

Head of household and single:

  • Zero children: $15,570
  • One child: $41,094
  • Two children: $46,703
  • Three or more children: $50,162

The maximum credit amounts are based on the number of children a taxpayer has. They are the same for all filing statuses:

  • Zero children: $529
  • One child: $3,526
  • Two children: $5,828
  • Three or more children: $6,557

Taxpayers who file using the status married filing separately cannot claim EITC.

IRS offers guidance on recent 529 education savings plan changes

IRS offers guidance on recent 529 education savings plan changes

WASHINGTON — The Internal Revenue Service and Department of the Treasury today announced their intent to issue regulations on three recent tax law changes affecting popular 529 education savings plans.

Notice 2018-58, addresses a change included in the 2015 Protecting Americans From Tax Hikes (PATH) Act, and two changes included in the 2017 Tax Cuts and Jobs Act (TCJA). Taxpayers, beneficiaries, and administrators of 529 and Achieving a Better Life Experience (ABLE) programs can rely on the rules described in this notice until the Treasury Department and IRS issue regulations clarifying these three changes.

Tuition refunds

The PATH Act change added a special rule for a beneficiary of a 529 plan, usually a student, who receives a refund of tuition or other qualified education expenses. This can occur when a student drops a class mid-semester. If the beneficiary recontributes the refund to any of his or her 529 plans within 60 days, the refund is tax-free.

The Treasury Department and the IRS intend to issue future regulations simplifying the tax treatment of these transactions. Re-contributions would not count against the plan’s contribution limit.

K-12 education 

One of the TCJA changes allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (k-12) public, private or religious school of the beneficiary’s choosing.

Rollovers to an ABLE account

The second TCJA change allows funds to be rolled over from a designated beneficiary’s 529 plan to an ABLE account for the same beneficiary or a family member. ABLE accounts are tax-favored accounts for certain people who become disabled before age 26, designed to enable these people and their families to save and pay for disability-related expenses.

The regulations would provide that rollovers from 529 plans, together with any contributions made to the designated beneficiary’s ABLE account (other than certain permitted contributions of the designated beneficiary’s compensation) cannot exceed the annual ABLE contribution limit — $15,000 for 2018. For more information about other TCJA provisions, visit IRS.gov/taxreform.

A summer job in sharing economy may affect taxes

A summer job in sharing economy may affect taxes

A college student wanting to do something other than wait tables. A teacher needing to make a little extra money. A family wanting to rent out their home while they’re on vacation. These are just a few examples of taxpayers making money from the sharing economy who should consider how this income affects their taxes.

Here are some key things for taxpayers to know about participating in the sharing economy:

Taxes. Sharing economy activity is generally taxable, including

  • Part-time work
  • A side business
  • Cash payments received
  • Income stated on a 1099 or W-2

Rentals. Special rules apply to a taxpayer who rents out a home or apartment, but who also lives in it during the year.

Withholding. Taxpayers involved in the sharing economy as an employee might want to review their withholding from that job and any other jobs they might have. They can often avoid making estimated tax payments by having more tax withheld from their regular paychecks. These taxpayers can file Form W-4 with their employer to request additional withholding. They can also use the Withholding Calculator on IRS.gov. This tool helps them check if they’re having too much or too little tax withheld from their income.

Estimated Payments. Taxpayers can pay as they go, so they don’t owe. One way that taxpayers can cover the tax they owe is to make estimated tax payments during the year. These payments can help cover their tax obligation. Taxpayers use Form 1040-ES to figure these payments.

Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Taxpayers can also use the Treasury Department’s Electronic Federal Tax Payment System.

IRS reminds extension filers of October 15 deadline

IRS reminds extension filers of October 15 deadline

The IRS reminds taxpayers who requested an extra six months to file their 2017 tax return that Monday, October 15, 2018, is the extension deadline for most taxpayers.

For taxpayers who have not yet filed, here are a few tips to keep in mind about the extension deadline and taxes:

  • Try IRS Free File or e-file. Taxpayers can still e-file returns for free using IRS Free File. The program is available only on IRS.gov. Filing electronically is the easiest, safest and most accurate way to file taxes.
  • Use Direct Deposit. For taxpayers getting a refund, the fastest way to get it is to combine direct deposit and e-file.
  • Use IRS online payment options. Taxpayers who owe taxes should consider using IRS Direct Pay. It’s a simple, quick and free way to pay from a checking or savings account. There are other online payment options.
  • Don’t overlook tax benefits. Taxpayers should be sure to claim all entitled tax credits and deductions. These may include income and savings credits and education credits.
  • Keep a copy of return. Taxpayers should keep copies of tax returns and all supporting documents for at least three years. This will help when adjusting withholding, making estimated tax payments and filing next year’s return.
  • File by October 15. File on time to avoid a potential late filing penalty.
  • More time for the military. Military members and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to both file returns and pay any tax due.

More Information:

  • EITC Assistant
  • Interactive Tax Assistant
  • IRS Tax Map

Help Available at IRS.gov for Taxpayers Who Filed an Extension

Help Available at IRS.gov for Taxpayers Who Filed an Extension

Millions of taxpayers filed an extension this year, and they have until October 15 to file their taxes. Taxpayers who filed an extension can visit IRS.gov for quick access to helpful tax information and tools that can help them between now and October:

  • Use IRS Free File. Prepare and e-file federal taxes free with IRS Free File. Taxpayers with income of $66,000 or less can file using free brand-name tax software. Those who earned more can use Free File Fillable Forms, the electronic version of IRS paper forms. Either way, everyone has a free e-file option, and the only way to access Free File is on IRS.gov.
  • Find Out How to File Tax Returns Electronically. IRS e-file, which includes Free File, is the easiest, safest and most popular way to file a complete and accurate tax return. The fastest way to get a refund is to combine e-file with direct deposit. On IRS.gov, taxpayers can find software options to e-file their own taxes or find an authorized e-file provider.
  • Get Answers to Tax Questions. The Interactive Tax Assistant tool and the IRS Tax Map answer many tax-law questions. Many IRS tools and products are also available in other languages, including Spanish.
  • Find a Tax Preparer. Taxpayers can use the Directory of Tax Return Preparers tool to find a list of tax preparers near them. Taxpayers can search based on the credentials and qualifications they want their preparer to have.
  • Check on a Refund. Track a refund using Where’s My Refund? It’s quick, easy and secure. Taxpayers can check the status of their refund within 24 hours after the IRS has received the e-filed return. Those who file a paper return can check the refund status four weeks after mailing it. Once the IRS approves a refund, the tool will give a date to expect it. The IRS updates refund status for the tool once a day.
  • Pay Taxes Online. Taxpayers will find information about the different ways they can pay their taxes. This includes electronic funds withdrawal, payment by debit or credit card, and IRS Direct Pay.
  • Use the EITC Assistant. Taxpayers who worked and earned less than $53,930 in 2017 may be eligible for the earned income tax credit. Taxpayers can use the EITC Assistant tool to see if they qualify.
  • View Account Information.  Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. Visit IRS.gov/secureaccess to review the required identity authentication process.

The IRS reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers using a software product for the first time may need their adjusted gross income amount from their 2016 tax return to file electronically. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

 

Tips for Taxpayers Who Missed the April Filing Deadline

Tips for Taxpayers Who Missed the April Filing Deadline

While the federal income tax-filing deadline has come and gone for most people, some taxpayers still haven’t filed or paid their taxes.

Here are some tips for handling common issues after the filing deadline has passed:

  • Anyone who didn’t file and owes tax should file a return as soon as possible and pay as much as possible to reduce penalties and interest. There’s no penalty for filing a late return if a refund is due. Penalties and interest only accrue on unfiled returns of taxpayers who don’t pay by the deadline.
  • For those who qualify, IRS Free File is still available on IRS.gov through October 15 to prepare and file returns electronically.
  • Filing soon is especially important because the late-filing penalty on unpaid taxes adds up quickly. Alternatively, taxpayers who have a history of filing and paying on time sometimes qualify for penalty relief.
  • Taxpayers who owe taxes can view their balance, and pay with IRS Direct Pay, or by debit or credit card. They can also apply online for a payment plan, including an installment agreement. Before accessing their tax account online, users must authenticate their identity through the Secure Access process. Several other electronic payment options are available on IRS.gov/payments.
  • The IRS will usually correct any math errors on a return and notify the taxpayer by mail. Similarly, the agency will send a letter requesting any missing forms or schedules.

IRS Offers Tips about Tips

IRS Offers Tips about Tips

Generally, income received in the form of tips is taxable. Here’s some information to help taxpayers correctly report the income they receive as a tip:

  • Use the Interactive Tax Assistant. The ITA tool is a tax-law resource that asks taxpayers a series of questions and provides a response based on the answers. Taxpayers can use Is My Tip Income Taxable?.
  • Show All Tips on a Tax Return. Use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to report the amount of any unreported tip income to include as additional wages. This includes the value of non-cash things someone receives as a tip, such as tickets or passes to an event.
  • Report All Types of Tips. Taxpayers must pay tax on all tips received during the year, including those:
    • Directly from customers.
    • Added to credit cards.
    • From a tip-splitting agreement with other employees.
  • Report Tips to an Employer. Employees who receive $20 or more in tips in any month must report their tips for that month to their employer by the 10th day of the next month, including cash, check and credit card tips received. The employer must withhold federal income, Social Security and Medicare taxes on the reported tips.
  • Keep a Daily Log of Tips. Use Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record tips. This will help report the correct amount of tips on a tax return.

Missed the tax-filing deadline? IRS issues tips on what to do

Missed the tax-filing deadline? IRS issues tips on what to do

While the federal income tax-filing deadline has passed for most people, there are some taxpayers still facing tax-related issues. This includes people who still haven’t filed, people who haven’t paid their taxes or those who are waiting for their tax refund.

The IRS offers these tips for handling some typical after-tax-day issues:

Didn’t file by April 18?

There is no penalty for filing a late return after the tax deadline if a refund is due. Penalties and interest only accrue on unfiled returns if taxes are not paid by April 18. The IRS provided taxpayers an additional day to file and pay their taxes following system issues that surfaced early on the April 17 tax deadline. Anyone who did not file and owes tax should file a return as soon as they can and pay as much as possible to reduce penalties and interest. For those who qualify, IRS Free File is still available on IRS.gov through Oct. 15 to prepare and file returns electronically.

Filing soon is especially important because the late-filing penalty on unpaid taxes adds up quickly. Ordinarily, this penalty, also known as the failure-to-file penalty, is usually 5 percent for each month or part of a month that a return is late.

But if a return is filed more than 60 days after the April due date, the minimum penalty is either $210 or 100 percent of the unpaid tax, whichever is less. This means that if the tax due is $210 or less, the penalty is equal to the tax amount due. If the tax due is more than $210, the penalty is at least $210.

In some instances, a taxpayer filing after the deadline may qualify for penalty relief. If there is a good reason for filing late, be sure to attach an explanation to the return.

Alternatively, taxpayers who have a history of filing and paying on time often qualify for penalty relief. A taxpayer will usually qualify for this relief if they haven’t been assessed penalties for the past three years and meet other requirements. For more information, see the first-time penalty abatement page on IRS.gov.

“Where’s My Refund?”

The “Where’s My Refund?” tool is available on IRS.gov, IRS2Go and by phone at 800-829-1954. To use this tool, taxpayers need the primary Social Security number on the return, the filing status (Single, Married Filing Jointly, etc.) and the expected refund amount. The tool updates once daily, usually overnight, so checking more frequently will not yield different results.

Changing withholding?

Because of the far-reaching tax changes taking effect this year, the IRS urges all employees, including those with other sources of income, to perform a paycheck checkup now. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty. The easiest way to do that is to use the newly-revised Withholding Calculator, available on IRS.gov.

Owe taxes or need to make a payment?

Taxpayers who owe taxes can view their balance, pay with IRS Direct Pay, by debit or credit card or apply online for a payment plan, including an installment agreement. Before accessing their tax account online, users must authenticate their identity through the Secure Access process. Several other electronic payment options are available on IRS.gov/payments. They are secure and easy to use. Taxpayers paying electronically receive immediate confirmation when they submit their payment. Also, with Direct Pay and EFTPS, taxpayers can opt in to receive email notifications about their payments.

Need to fix an error on a return?

After filing their return, taxpayers may determine that they made an error or omitted something from their return. Usually an amended return is not necessary if a taxpayer makes a math error or neglects to attach a required form or schedule. Normally the IRS will correct the math error and notify the taxpayer by mail. Similarly, the agency will send a letter requesting any missing forms or schedules. Taxpayers can use the Interactive Tax Assistant — Should I File an Amended Return? — to help determine if they should file an amended return to correct an error or make other changes to their return.

Form 1040X, Amended U.S. Individual Income Tax Return, must be filed by paper and is available on IRS.gov/forms at any time. Those expecting a refund from their original return, should not file an amended return before the original return has been processed. File an amended tax return to change the filing status or to correct income, deductions or credits shown on the originally-filed tax return. Use “Where’s My Amended Return?” tool to track the status of an amended return. Normally, status updates are available starting three weeks after the amended return is filed. Allow up to 16 weeks for processing.

Need help responding to an IRS notice or letter?

An IRS notice or letter will explain the reason for the contact and give instructions on how to handle the issue. Most questions can be answered by visiting “Understanding Your Notice or IRS Letter” on IRS.gov. Taxpayers can call the phone number provided in the notice if they still have questions. If the issue can’t be resolved with the IRS through normal channels, contact the local Taxpayer Advocate Service office or call 877-777-4778.

Taxpayer Bill of Rights

Taxpayers have fundamental rights under the law. The Taxpayer Bill of Rights presents these rights in 10 categories. These rights protect taxpayers when they interact with the IRS. Publication 1, Your Rights as a Taxpayer, highlights these rights and the agency’s obligations to protect them.

Watch out for scams

The IRS will never make an initial, unsolicited contact via email, text or social media on filing, payment or refund issues. The IRS initiates most contacts through regular mail delivered by the United States Postal Service. Any email that appears to be from the IRS about a refund or tax problem is probably an attempt by scammers to steal personal or financial information. Forward the e-mail to phishing@irs.gov.

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