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

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.

Here’s how the credit for other dependents can benefit taxpayers

Taxpayers with dependents may qualify to claim a few different tax credits. One of these is the child tax credit. The child tax credit benefits people whose dependent meets a series of tests. If the dependent doesn’t meet those qualifications, the taxpayer may be able to claim the credit for other dependents.

Here’s some info about the credit for other dependents. These details can help taxpayers find out if they can claim it when they file their taxes next year.

A taxpayer can’t claim the credit for other dependents for a child who qualifies for the child tax credit or the additional child tax credit.
A qualifying individual could be the taxpayer’s older child, parent or cousin. It could even be someone who is not related to the taxpayer. To qualify, the unrelated person must have lived with the taxpayer for the entire tax year.
The maximum amount of the credit is $500 per qualifying dependent.
The dependent must be a U.S. citizen, a U.S. national, or a U.S. resident alien.
Taxpayers who are eligible to claim this credit must list the name and Social Security number or individual taxpayer identification number for each dependent they claim on their tax return.
The credit begins to phase out at $200,000 of modified adjusted gross income. This amount is $400,000 for married couples filing jointly.
Taxpayers can use the worksheet on page 6 of Publication 972, Child Tax Credit, to determine if they can claim this credit.

A few things that are good to know…

Who can file as “head of household”? You can, so long as you are not married, can claim one dependent, and have paid for more than 50% of your household expenses. That’s the basics, click here for details. There are other filing statuses, Single, Married, Married Filing Separately. Each has different criteria and different tax ramifications. Ask a tax professional if you are unsure how you should file.

What’s a “tax bracket”? We are talking Federal tax brackets here (your state will have its own), and these are always changing, and how calculated, also changing. But generally speaking a bracket is the range of income at which a certain percentage of that income is calculated as tax payable. There will be 7 tax brackets for taxes due April 2020. But this is not the whole story. Where you are during the year may not be where you end up after filling out your tax forms. It all depends on your deductions, your dependents, and circumstances that change over the year.

Which brings us to, the “adjusted gross income”. The adjusted gross income or AIG is the gross amount of your income (from work or other sources) minus the taxes that you have already paid. Then, as you are filling out your tax forms, if you have tax deductions that apply to you, these will bring down your AIG even more and that is the amount that determines your tax bracket.

What is a “tax deduction”? A tax deduction is the amount the IRS allows you to deduct from your AIG for certain expenses the IRS has decided (in that calendar year, and based on certain circumstances) you are allowed to deduct. There is the Standard deduction, a set dollar amount that you can deduct from your gross income depending on your filing status. Then there are Itemized deductions. Those are expenses deemed deductible by the IRS under certain circumstances.

What is a “tax credit” then? This is an amount that reduces your tax liability. So, if you owe $1000 but you earn a tax credit worth $200, then you will end up only owing $800. Tax credits are generally more beneficial because they reduce your tax liability by a larger amount than a deduction to your AIG.

What are the penalties for filing, and paying (if you owe) your taxes late? Well there are a few, and more than one can apply at a time.

There is the “failure to file” penalty can be assessed if you fail to file by the April 15^th deadline or request an extension.

There is also a “failure to pay” penalty which can be assessed if you owe taxes at the time of the due date and do not pay them, or at least 90% of what is owed.

But wait, there is more to know. Penalties start accruing the day after taxes are due and will continue to accrue each month or partial month until your taxes are filed and paid in full.

And yes, unfortunately there is also interest applied to unpaid tax balances.

Click here for more information on penalties and fees.

So, while not filing by April 15th may sometimes be unavoidable,

do file and extension
do contact the IRS if you cannot pay to set up a payment plan
ask a tax professional for help to avoid penalties and fees

How Your Divorce May Affect Your Tax Return

After the divorce papers are signed and the rings come off, filing taxes are probably low on your list of things to worry about. However, a divorce may carry a serious financial impact on the separating couple and their children. As a result, verifying your tax situation should be higher on your list of priorities.

Whether this is the first time filing as a newly single adult or your first time filing at all, there are a few things you should know when it comes down to owing Uncle Sam.

Determining Your Filing Status

The first step in filing taxes after a divorce is determining your tax filing status. The filing status is determined by the last day of the year in which you are filing your taxes. Example, if you were still married by December 31 the IRS will consider you married for the entire year. On the other hand, if you are divorced by December 31 the IRS considers you divorced for the entire year.

Claiming The Children As Dependents After Divorce

The IRS will only allow one parent to claim the child as a dependent. Frequently, claiming a child on taxes can be a quarrelsome topic for divorced parents. For this reason, it is important to establish the custodial parent or come to a mutual agreement before tax season.

If the non-custodial parent claims the child on their taxes the IRS may make them prove their entitlement.

Filing as Head of Household

There are major benefits associated with filing as head of household after a divorce, as opposed to filing as single. Head of household status filing carries a greater standard deduction. This may make the filer eligible for valuable tax credits and a lower tax rate.

Information to keep In mind while fling as head of household:

The divorce must have been finalized as of December 31 of the year you’re filing the tax return.
You paid at least half of the cost of keeping up your home.
A qualifying person lived with you at least half the year.*

*A qualifying person example: children attending school away from home, married children you claim as dependents, qualifying parents you support and claim as dependents even if they don’t live with you.

Qualifying Children After A Divorce

Most commonly, the child is the qualifying child of the custodial parent. It is important to note that you and your former spouse may not both file as head of household on shared support for the same child or children. Divorce decrees typically outline tax arrangements. If the decree does not specify a tax agreement and the children spend equal parts time with both parents, the parent with the higher gross income can claim the child for purposes of filing as head of household.

When a Noncustodial Parent Can Claim A Qualifying Child

The Child Tax Credit

The child tax credit is a credit that offsets the taxes you owe dollar for dollar. This credit is available for those that have a child younger than 17 that lived with them for half the year. You may only claim the child tax credit if you are eligible to claim the child as a dependent.

Other Child-Related Expenses to Lower Your Tax Bill

If the non-custodial parent still pays for the child’s medical expenses after the divorce has been finalized, they may be eligible to include the medical costs in the medical expense deduction.

Child Support

Child support that has been legally mandated has no tax consequence for either party. The IRS considers child support to operate outside the realm of taxes. If you pay child support, your just repost your income normally and do not decrease the amount paid into child support. Likewise, if you are the recipient of child support, you don’t increase your reported income.

Alimony

In the past, alimony received and alimony given had to be accounted for in your taxable income. This is no longer the case, for divorces finalized after January 1, 2019, alimony payments are no longer deductible

According to the IRS, payments that qualify as alimony include the following:

The spouses may not file jointly.
Payments are cash. (Checks and money orders included)
The payments to spouse/former spouse are under a divorce or separation agreement.
Spouses are not members of the same household at the time.
The payment is not child support or other property settlement.
There is no liability to make the payments into cash or property after the death of the receiving spouse.

Thanks to Ellen @ Carlson Law for Content Share

IRS issues final regulations, for Head of Household Filers

IRS issues final regulations, expanding paid preparer due diligence requirement to head of household filers

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued final regulations expanding the long-standing paid preparer due diligence requirement to include individual income tax returns claiming the head of household filing status.

The final regulations, available in the Federal Register, implement a provision included in the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December 2017. The additional requirement will apply starting with 2018 returns, prepared on or after November 7, 2018.

The due diligence requirement was originally designed to reduce errors on returns claiming the Earned Income Tax Credit. Legislation in 2015 expanded the due diligence requirements to include the Child Tax Credit, Additional Child Tax Credit, and American Opportunity Tax Credit. Under the TCJA, the due diligence requirement now also applies to individual income tax returns claiming the head of household filing status. Temporary and proposed regulations were issued in December 2016 to implement the 2015 changes, which today’s regulations also finalized.

Paid preparers must submit Form 8867, Paid Preparer’s Earned Income Credit Checklist, with every tax return claiming any of the covered tax benefits. The form is designed as a checklist to help paid preparers meet the requirement by obtaining eligibility information from their clients. The form will be revised later this year to reflect the addition of the head of household filing status. Paid preparers are required to keep copies of the form or comparable documentation for their records, which is also subject to review by the IRS.

Paid preparers are subject to a penalty, indexed to inflation, for each failure to comply with the requirement. For tax year 2018, the penalty will be $520.

For updates on this and other TCJA provisions, visit IRS.gov/taxreform.

IRS Encourages Native Americans to Check Eligibility for Earned Income Tax Credit

IRS Encourages Native Americans to Check Eligibility for Earned Income Tax Credit

The IRS urges Native American taxpayers to check if they qualify for the earned income tax credit since many workers in Tribal communities often overlook this credit.

EITC benefits Native Americans who meet basic rules. Taxpayers must have income from a job, be self-employed, or run their own business. This includes home-based businesses and work in the service industry, construction and farming.

Income Limits and Maximum Credit Amounts

For tax year 2017, the income limits for all taxpayers’ earned income and adjusted gross income must each be less than:

Filing Status	Qualifying Children Claimed
Filing Status	Zero	One	Two	Three or More
Single	$15,010	$39,617	$45,007	$48,340
Head of Household	$15,010	$39,617	$45,007	$48,340
Qualifying Widow(er) with Dependent Child	$15,010	$39,617	$45,007	$48,340
Married Filing Jointly	$20,600	$45,207	$50,957	$53,930

The maximum credit for Tax Year 2017 is:

$6,318 with three or more qualifying children
$5,616 with two qualifying children
$3,400 with one qualifying child
$510 with no qualifying children

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

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

Here’s how the credit for other dependents can benefit taxpayers

A few things that are good to know…

IRS issues final regulations, for Head of Household Filers

IRS Encourages Native Americans to Check Eligibility for Earned Income Tax Credit

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