IRS tools to help with estimated taxes 11/3/17
Taxpayers should make estimated tax payments if:
- The tax withheld from their income does not cover their tax for the year.
- They have income without withholdings.
Examples include interest, dividends, alimony, self-employment income, capital gains, prizes, or awards.
6 actions taxpayers can take include:
- Use Form 1040-ES to figure estimated tax.
- Use the Withholding Calculator on IRS.gov to figure how much their employer should withhold from their pay and fill out their Form W-4.
- Taxpayers whose income is not paid evenly throughout the year can check Publication 505 instead of the calculator.
- Have more tax withheld from a regular paycheck by filling out a new Form W-4 and give it to their employer.
- Use estimated payments to pay other taxes: Self-employed individuals can make estimated tax payments to pay both income tax and self-employment tax. Self-employment tax includes Social Security and Medicare.
- Use Form W-4P and give it to their payer to adjust withholding from pension and annuity plans.
See Publication 525, Taxable and Nontaxable Income
IRS Options to Help Small Business Owners 10/25/17
The IRS Small Business and Self-Employed Tax Center has 7 resources to help small businesses owners with common tax topics:
- Looking at the Big Picture: information on IRS.gov to one common place.
- Organizing Tasks: The IRS Tax Calendar for Businesses and Self-Employed helps owners stay organized. It includes tax due dates and actions for each month. Users can subscribe to calendar reminders or import the calendar to their desktop or calendar on their mobile device.
- Searching for Topics: The A-to-Z Index for Business helps people easily find small business topics on IRS.gov.
- Getting Information by Email: Small business owners can sign up for e-News for Small Businesses. The free, electronic service gives subscribers information on deadlines, emerging issues, tips, news and more.
- Watching Videos: The IRS Video Portal offers learning events and informational videos on many business topics.
- Finding Forms: The Small Business Forms and Publications page helps business owners find the documents they need for the type of business they own. It lists tax forms, instructions, desk guides and more.
- Meeting in Person or Online: Small business workshops, seminars and meetings are held throughout the country. They’re sponsored by IRS partners that specialize in federal tax topics. Topics vary from overviews to more specific topics such as retirement plans and recordkeeping.
LLC Liability Limitation Doesn’t Apply to Missouri Tax 9/29/17
The Missouri Administrative Hearing Commission (“AHC”) issued a decision in Oliver and Crask v. Director of Revenue, Case No. 14-1221 RS, on September 13, 2017, upholding personal liability of members of a Limited liability company (“LLC”) taxed as a partnership for unpaid sales tax, even though the members had no control over finances or ability to insure the taxes were paid.
LLC members are generally NOT liable for LLC obligations and liabilities absent a personal guaranty, application of the “piercing the veil” doctrine, or other statutory provision. The IRS respects this liability limitation unless a members is a “responsible person” under Internal Revenue Code § 6672.
The Missouri Administrative Hearing Commission (“AHC”) issued a decision in Oliver and Crask v. Director of Revenue, Case No. 14-1221 RS, on September 13, 2017, upholding personal liability of members of a Limited liability company (“LLC”) taxed as a partnership for unpaid sales tax, even though the members had no control over finances or ability to insure the taxes were paid.
, Case No. 14-1221 RS, on September 13, 2017, upholding personal liability of members of a Limited liability company (“LLC”) taxed as a partnership for unpaid sales tax, even though the members had no control over finances or ability to insure the taxes were paid.
In the Oliver, the LLC operated a restaurant. Oliver was a member and bar manager, and Crask was a member and head chef. The LLC was member managed, but the operating agreement required that a third member owning a majority member interest approve any business decision. Neither Oliver or Crask made a financial contribution to the LLC, or ever received a distribution from the LLC. Both Olive and Crask could sign checks, but rarely did, and then only to pay vendors. The third member was responsible for filing returns and paying tax. Neither Oliver nor Crask were aware taxes were unpaid. The restaurant eventually closed, but neither Oliver nor Crask were part of the decision to close.
The AHC rejected Oliver’s and Crask’s argument that R.S.Mo. §144.157 required that they have “direct control, supervision or responsibility or filing returns and making payment” for them to be personally liable for the unpaid sales tax. The AHC held §144.157 only applied to corporations, and not to LLCs taxed as partnerships. The AHC also held that §347.187.2 requires LLCs to be classified and treated for sales and use tax purposes consistent with the LLC’s federal income tax classification, i.e., as a partnership. R.S.Mo. §358.150.1 provides “all partners are liable jointly and severally for everything chargeable to the partnership pursuant to sections 358.130 and 358.140, and for all other debts and obligations of the partnership.” Consequently, as LLC members, Oliver and Crask were personally liable for the unpaid sales tax.
The Missouri Division of Employment Security (“Division”) does not have a “responsible person” statute applicable to corporations, but also asserts §347.187.2 makes members of LLCs taxed as partnerships liable for unpaid unemployment contributions.
This makes it important for members of an LLC operating a business to confirm sales and withholding taxes, and unemployment contributions, are paid, even if they have no authority to control payment.
Multistate Tax Commission Announces Terms of Voluntary Disclosure Initiative for Fulfillment by Amazon Sellers 8/10/17
The Multistate Tax Commission (MTC) announced the terms of its voluntary disclosure initiative for Fulfillment by Amazon (FBA) sellers and other online sellers who have nexus in a state because of the presence of inventory at an Amazon warehouse or because of activities performed on behalf of the online seller by an online marketplace. (Online Marketplace Seller Voluntary Disclosure Initiative, 08/08/2017.)
Under the FBA program, sellers can list their products with Amazon and have Amazon hold their inventory at one of Amazon’s warehouses before shipping the seller’s products to the purchaser. The presence of the seller’s inventory in a state is sufficient to create nexus for sales taxes, corporate taxes and personal income taxes regardless of whether the seller has any other presence within the state where its inventory is stored.
Amazon FBA sellers and similarly situated sellers can apply to register their business with participating states during the voluntary disclosure program period, which begins August 17, 2017 and ends October 17, 2017.
The MTC will treat the applicant’s identity as confidential during the voluntary disclosure process, and disclose an applicant’s identity to a state only after the applicant has entered into a Voluntary Disclosure Agreement (VDA) with that state. The MTC does not disclose the VDA or any of its terms to any other state. Taxpayers will be required to estimate their back tax liability for the past four years even though this tax liability may be waived under the initiative. The MTC has advised that applications will take 30 to 60 days to be processed.
Generally, under a VDA, there is a lookback period. The lookback period is the period during which firms must file returns and remit taxes. The lookback period varies by state but most states require a 3- or 4-year lookback period as part of a VDA. Alabama, Arkansas, Colorado, Connecticut, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, South Dakota, Texas, Utah, and Vermont have agreed to waive the lookback period for FBA sellers for sales tax. Wisconsin is participating in the initiative but will require payment of back tax liability and interest for the following lookback periods: for sale/use tax, commencing January 1, 2015; for income/franchise tax, including tax years 2015 and 2016. Colorado has not waived the lookback period for income taxes. Other states will announce whether they will waive the lookback period by August 17, 2017.
The IRS Small Business and Self-Employed Tax Center 4/28/17
This online information center features links to a wealth of useful tools, including Small Business Taxes: The Virtual Workshop and common IRS forms with instructions. Find help on everything from how to get an Employer Identification Number online to how to engage with the IRS during an audit. The IRS Tax Calendar for businesses and Self-Employed is a convenient, at-a-glance resource designed to show key tax dates for businesses. Download the Calendar Connector tool to get the dates even when offline.
The IRS Self-Employed Individuals Tax Center 4/28/17
A resource for sole proprietors and others who are in business for themselves, this site has many handy tips and references to tax rules a self-employed person may need to know. In addition to many other subjects, taxpayers will find information on:
- How to Make Quarterly Payments.
- Requirements for Information Returns.
- How to File an Annual Return.
- Business Structures.
- Qualified Joint Ventures
How to know it’s really the IRS calling or knocking on your door 4/21/17
The IRS initiates most contacts through regular mail delivered by the United States Postal Service.
There are special circumstances in which the IRS will call or come to a home or business, such as when a taxpayer has an overdue tax bill, to secure a delinquent tax return or a delinquent employment tax payment, or to tour a business as part of an audit or during criminal investigations.
Even then, taxpayers will generally first receive several letters (called “notices”) from the IRS in the mail.
Note that the IRS does not:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
- Demand that you pay taxes without the opportunity to question or appeal the amount they say you owe. You should also be advised of your rights as a taxpayer.
- Threaten to bring in local police, immigration officers or other law-enforcement to have you arrested for not paying. The IRS also cannot revoke your driver’s license, business licenses, or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.
If you owe taxes: The IRS instructs taxpayers to make payments to the “United States Treasury.” The IRS provides specific guidelines on how you can make a tax payment at irs.gov/payments.
Private Collection of Some Overdue Federal Taxes Starts in April 4/4/17
Starting in April 2017, the IRS will begin sending letters to a relatively small group of taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies. The new program authorized under a federal law enacted by Congress in December 2015 enables these designated contractors to collect, on the government’s behalf, unpaid tax debts.
The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA). First, the IRS will send a letter to the taxpayer and their tax representative informing them that their account is being assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.
Once the IRS letter is sent, the designated private firm will send its own letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the collection firm’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate.
The private collectors will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act, and like IRS employees, must be courteous and must respect taxpayer rights.
The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made to the IRS, either electronically or by check. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. To find out more about available payment options, visit IRS.gov/Payments.
Private firms are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a levy. To learn more about the new private debt collection program, visit the Private Debt Collection page on IRS.gov.
Only four private groups are participating in this program: (1) CBE Group of Cedar Falls, Iowa; (2) Conserve of Fairport, N.Y.; (3) Performant of Livermore, Calif.; and (4) Pioneer of Horseheads, N.Y. The taxpayer’s account will only be assigned to one of these agencies, never to all four. No other private group is authorized to represent the IRS.
Watch out for Phone Scams
The IRS reminds taxpayers to be on the lookout for scammers posing as private collection firms. People should remember that these private collection firms will only be calling about a tax debt the person has had and has been aware of for years and had been contacted about previously in the past by the IRS.
If taxpayers are unsure if they have an unpaid tax debt from a previous year which is what the private collection firms will handle they can go to IRS.gov and check their account balance: www.irs.gov/balancedue. If the account balance says zero, that means nothing is due, and you typically wouldn’t be getting a contact from the IRS or the private firm.
Here are some things the scammers often do but the IRS and its contractors will never do.
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes, and if a case is assigned to a PCA, both the IRS and the authorized collection agency will send the taxpayer a letter. Payment will always be to the United States Treasury.
- Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
- Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
- Ask for credit or debit card numbers over the phone.
- Unexpected and threatening calls out of the blue from someone
Don�t Wait to Hear from the IRS or a Contractor
As always, the IRS encourages taxpayers behind on their tax obligations to come forward and either pay what they owe or set up a suitable payment plan. This means there’s no need to wait for a phone call or letter from the IRS or any of its contractors. Frequently, taxpayers qualify for one of several payment options, and taking advantage of them is often easier than many people think. These include the following:
- Most people can set up a payment agreement with the IRS online in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS and qualified taxpayers can avoid the filing of a Notice of Federal Tax Lien if one was not previously filed. Alternatively, taxpayers can request a payment agreement by filing Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.
IR-2017-74, April 4, 2017
Eligible small businesses can apply all or part of their research credit against their payroll tax liability instead of just their income tax liability 4/4/17
Notice 2017-23, posted March 30, 2017 on IRS.gov, provides guidance on a new provision included in the Protecting Americans From Tax Hikes (PATH) Act enacted in December 2015.
An eligible small business with qualifying research expenses can choose to apply up to $250,000 of its research credit against its payroll tax liability, by filling out Form 6765, Credit for Increasing Research Activities, and attaching it to a timely-filed business income tax return. After choosing this option, a small business claims the payroll tax credit by filling out Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This form must be attached to its payroll tax return, for example Form 941, Employer’s Quarterly Federal Tax Return.
This will benefit any eligible startup that has little or no income tax liability.
This option is available for the first time to any eligible small business filing its 2016 federal income tax return this tax season. Those small businesses that have already filed still have time to choose this option. Under a special rule for tax-year 2016, a small business that failed to choose this option and still wishes to do so, can still make the election by filing an amended return by Dec. 31, 2017.
To qualify for the new option for the current tax-year, a business must have gross receipts of less than $5 million, and could not have had gross receipts prior to 2012.
IRS Tips about the sharing economy 3/30/17
If taxpayers use one of the many online platforms to rent a spare bedroom, provide car rides, or a number of other goods or services, they may be involved in the sharing economy, and sharing economy activity is taxable.
The IRS now offers a Sharing Economy Tax Center, to help taxpayers find the resources they need to help them meet their tax obligations:
- Taxes. Sharing economy activity is generally taxable, regardless of whether it is only part time or a sideline business, if payments are in cash, or if an information return like a Form 1099 or Form W2 is issued or not.
- Deductions. There are some simplified options for deducting many business expenses for those who qualify. For example, a taxpayer who uses his or her car for business often qualifies to claim the standard mileage rate, which was 54 cents per mile for 2016.
- Rentals. If a taxpayer rents out his home, apartment or other dwelling, but also lives in it during the year, special rules generally apply. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxpayers can use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.
- Estimated Payments. Taxpayers involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. 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, or using the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).
- Withholding. Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. File Form W-4 with your employer to request additional withholding. Use the Withholding Calculator on IRS.gov.
Tax Credit for Retirement Savings Contributions 3/29/17
Taxpayers who contribute to a retirement plan, like a 401(k) or an IRA, may be able to claim the Nonrefundable Saver’s Credit. The maximum contribution is $2,000 per person. Those filing a joint return can also contribute $2,000 for the spouse.The credit cannot be more than the amount of tax that a taxpayer would otherwise pay in taxes. This credit will not change the amount of refundable tax credits.
Taxpayers may be able to claim the credit depending on their filing status and the amount of their annual income, for the 2016 tax return if they are:
- Married filing jointly with income up to $61,500
- Head of household with income up to $46,125
- Married filing separately or
- a single taxpayer with income up to $30,750
- Taxpayers must be at least 18 years of age.
- They can’�t have been a full-time student in 2016.
- No other person can claim them as a dependent on their tax return.
A taxpayer must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit, but may contribute to an IRA by the due date of their tax return and still have it count for 2016. The 2016 return due date for most people is April 18, 2017.
Taxpayers can us the Interactive Tax Assistant Tool, Do I Qualify for the Retirement Savings Contributions Credit ?, to determine if they qualify to claim the Saver’s Credit. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.
Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
The IRS has established a process for employers & payroll service providers to quickly report any data losses related to the W-2 scam 3/28/17
A dangerous email scam currently is circulating nationwide and targeting employers, including tax exempt entities, universities and schools, government and private-sector businesses. The scammer poses as an internal executive requesting employee Forms W-2 and Social Security Number information from company payroll or human resources departments. They may even send an initial “Hi, are you in today” message before the request.
The IRS has established a process that allows employers and payroll service providers to quickly report any data losses related to the W-2 scam to the IRS, Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers. If notified in time, the IRS can take steps to prevent employees from being victimized by identity thieves filing fraudulent returns in their names. There also is information about how to report receiving the scam email even if you did not fall victim. Tax professionals who experience a data breach also should quickly report the incident to the IRS. Tax professionals may contact their local stakeholder liaison. See details at Data Theft Information for Tax Professionals.
Collection Financial Standards are used to help determine a taxpayer’s ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer�s (and his or her family’s) health and welfare and/or production of income.
The IRS has updated its policy covering Offer in Compromise applications 3/17/17
Beginning with Offer applications, the IRS will return any newly filed Offer in Compromise application received on or after March 27, 2017 if the applicant has not filed all required tax returns. Any application fee included with the OIC will also be returned. Any initial payment required with the returned application will be applied to reduce your balance due. This policy does not apply to current year tax returns if there is a valid extension on file.
Taxpayer Allowed Only One “Opportunity” To Challenge Penalty Assessment 3/1/17
In Keller Tank Services II, Inc., CA-10, February 21, 2017, the Tenth Circuit held that the Tax Court properly decided that a taxpayer was not entitled to challenge a penalty in a collection due process (CDP) hearing assessed against it after previously challenging the penalty with IRS appeals. In so doing, the appeals court affirmed that it was reasonable to interpret the applicable statute as only offering one chance to challenge an assessment.
The Tax Court granted summary judgment in the IRS’s favor after determining that the taxpayer was precluded from challenging the liability because it was provided with the prior opportunity to do so in its hearing before the appeals office. The Tax Court found that the IRS had reasonably interpreted Reg. §301.6320-1(e)(3) as allowing a taxpayer only one opportunity, whether in court or before the appeals office, to challenge a tax liability.
The Tenth Circuit affirmed the Tax Court’s decision. The Tenth Circuit found that Reg. §301.6330-1does not impermissibly limits the jurisdiction of the Tax Court, and does not address the Tax Court, but merely limits the scope of what may be heard at the agency’s administrative CDP proceedings. Additionally, the regulation has no impact on the taxpayer’s ability to file a refund suit in federal district court. As the taxpayer failed to establish that the regulation was arbitrary, capricious or manifestly contrary to the statute, the regulation was entitled to Chevron deference.
One commenter noted that an IRS Appeals Conference on the substantive issue of whether a taxpayer is subject to liability is not an administrative hearing in the customary sense, and is not a formal adjudication. There is no administrative law judge or finder of fact; no transcript of the proceedings; no witnesses so no opportunity to examine or cross-examine; neither discovery nor evidentiary rules; statements made during the process are generally inadmissible under the Federal Rules of Evidence; and there are there is no final decision on the merits. There is no potential argument that the IRS Appeals Officer abused his or her discretion in arriving at the settlement offer as it is merely a nonbinding, relatively informal, conciliation conference with an employee of the adversary, in this case an IRS employee, whose job is to attempt to, but is not required to settle the case.
It was noted that the Trump administration and GOP are attempting to limit the scope of the”Chevron” doctrine in an attempt to stop judges from deferring to agency interpretation in legal challenges. The premise is that the code and regulations should be written with clarity to avoid discrepancies in interpretations across different cases.
IRS Guide to Community-Based Free Tax Preparation 2/9/17
The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs help people every year. Through these IRS-sponsored programs, millions of lower-to-moderate income individuals and families get their taxes done free.
The IRS works with local community groups to train and certify VITA and TCE volunteers to offer this service. Eligible taxpayers, including those with disabilities or limited English, should take advantage of these free programs.
Here are several important details about VITA and TCE:
- VITA offers free tax return preparation to eligible taxpayers who generally earn $54,000 or less.
- TCE is mainly for people age 60 or older but offers service to all taxpayers. The program focuses on tax issues unique to seniors. AARP participates in the TCE program through AARP Tax-Aide.
- Local Sites. The IRS works with community organizations to offer free tax services at thousands of sites nationwide. These sites usually open in late January and early February.
- Free Electronic Filing. VITA and TCE provide free electronic filing. E-filing is the safest, most accurate way to file a tax return. Combine e-file with direct deposit for quicker refunds.
- Tax Benefits. VITA and TCE volunteers help people to get all the tax benefits for which they are eligible. These include the Earned Income Tax Credit, American Opportunity Tax Credit, the Child Tax Credit or the Credit for the Elderly.
- Bilingual Help. Some VITA and TCE sites provide bilingual help.
- Help for Military. Many military bases have VITA sites that offer free tax assistance to members of the military and their families. Volunteers can help with military tax topics. Some of these include special rules and tax benefits that apply to those serving in combat zones.
- Self-Preparation Option. At many VITA sites, people who earn $64,000 or less may be able to prepare their own tax returns using free web-based software. This option is for those who do not have a home computer or do not need much help.
- Site Information. Taxpayers can find the nearest VITA site by using the VITA Locator Tool at IRS.gov or by downloading the IRS2Go app. Site information is also available by calling the IRS at 800-906-9887. Find more on AARP Tax-Aide locations at by using the AARP Tax-Aide Locator or by calling 888-227-7669.
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
IRS Refundable Credit Resources 1/27/17
The toolkit brings you tools and resources for other refundable credits along with the Additional Child Tax Credit refundable portions. But, we also provide resources for Lifetime Learning Credit and the Child Tax Credit.
information on Understanding Who is a Qualifying Child
To be a qualifying child for any of the child related tax benefits:
- Dependency Exemption
- Child Tax Credit
- Earned Income Tax Credit
- Child and Dependent Care Credit
- Head of Household Filing Status
The child must meet the basic tests under the Uniform Definition of a Qualifying Child and then each credit has additional rules the child and the person claiming the child must meet. Uniform Definition of a Qualifying Child The Working Families Tax Relief Act of 2004 amended in 2008 to add the joint return test set a standard definition of a qualifying child for these five child related tax benefits. In general, to be your client’s qualifying child, a person must satisfy these tests:
- Relationship: Client’s son, daughter, stepson, stepdaughter, adopted child, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendent of any of them
- Residency: Same principal residence as your client for more than half the tax year
- Age: Under age 19 at the end of the year; Under age 24 if a full-time student for at least five months of the year; or Permanently and totally disabled during the year
- Support: Did not provide more than one-half of own support
- Joint Return: Did not file a joint return (other than only to claim a refund of withheld taxes) with the child’s spouse
The law also defined exceptions and special rules for dependents with a disability, divorced parents, adopted children and missing or kidnapped children. The exceptions and special rules for dependents with a disability and divorced parents are different for each of the child-related benefits; see the Child-related Tax Benefits Comparison chart for more information.
Adopted Child: An adopted child is always treated as your own child and includes a child lawfully placed with you for legal adoption.
Missing or Kidnapped Children: You may be able to claim a child who was kidnapped by a non-family member. IRS treats a kidnapped child as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping.
Here’s what you need to know about the CTC, Child Tax Credit, and the refundable portion, the ACTC, Additional Child Tax Credit.
- Know that the CTC is up to $1,000 per qualifying child. If you claim the nonrefundable child tax credit but do not qualify for the full amount, you may also be able to take the refundable ACTC. You must meet various criteria regarding the qualifying child.
- Know that you can�t take the refundable portion of the Child Tax Credit if you or your spouse (if filing a joint return) file a Form 2555 or Form 2555EZ (related to excluding foreign earned income)
- Know who is a qualifying child. The child must:
- Be under 17 at the end of the tax year
- Meet the relationship and residency tests for uniform definition of a qualifying child, see Understanding What is a Qualifying Child
- Not provide more than half of his or her own support for the tax year
- Have lived with you for more than half the tax year (see Publication 972, Child Tax Credit, for exceptions for birth or death during the year, temporary absences, kidnapped or missing or children of divorced or separated parents)
- Be claimed as a dependent on your return Not file a joint return for the year (or filed the joint return only to claim a refund of taxes withheld or estimated taxes)
- Be U.S. citizen, U.S. National or a U.S. resident alien (To be treated as resident of the U.S., a child generally needs to meet the requirements of the substantial presence test see Publication 519, U.S. Tax Guide for Aliens, for more information)
- Know the limits on the credit
- You can’t take the part of the CTC left after it reduces your tax to zero unless you qualify for the ACTC
- The CTC is reduced if your MAGI, modified adjusted gross income is above the amount listed below by filing status:
- Married filing jointly – $110,000
- Single, head of household or qualifying widow or widower–$75,000
- Married filing separately – $55,000
- Many people who qualify for the Earned Income Tax Credit also qualify for CTC and ACTC but know the important differences
- For CTC, the qualifying child must be under age 17; the age limits for EITC are higher and there is no age limit for a child who is totally and permanently disabled
- For EITC, the child must have a Social Security number that is valid for employment but a child with an ITIN may qualify for CTC but must meet the substantial presence test, Be admitted for lawful permanent residence or make a first year election (see Instructions for Schedule 8812 for more information)
- To claim the CTC for a child with an ITIN, you must complete Part I of the Schedule 8812 and complete Part II to IV to claim the ACTC
A handy chart shows some of the basic eligibility requirements for tax benefits available to those with a qualifying child. This chart compares the Earned Income Tax Credit (EITC), the Dependency Exemption, the Child Tax Credit and the refundable part of the CTC, the Additional Child Tax Credit (CTC/ACTC), the Head of Household filing status and the Child and Dependent Care Credit.
The chart is for quick comparison only. Each listed benefit has other requirements. This at-a-glance guide also directs you to more information to make sure the child is a qualifying child for the tax benefit.
Claim the Earned Income Tax Credit 1/27/17
The Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break for 40 plus years. Yet, 1 out of every 5 eligible workers fails to claim it. Here are some things taxpayers should know about the EITC:
- Review Your Eligibility. Taxpayers who worked and earned under $53,505 may qualify for EITC. Filers should review EITC eligibility rules if their household income or family situation has changed. They may qualify for EITC this year, even if they did not in the past. To qualify, a taxpayer must file a federal income tax return claiming the Earned Income Tax Credit. This is true even if a taxpayer is not otherwise required to file a tax return. Use the EITC Assistant tool to find out about eligibility rules and amounts.
- Know the Rules. Taxpayers need to understand the rules before they claim the EITC. It is important to get this right. Here are some factors to consider:
- Taxpayers who are married and file a separate return do not qualify for the EITC.
- Filers must have a Social Security number valid for employment for themselves, their spouse (if married), and any qualifying child listed on their filed tax return.
- Taxpayers must have earned income. This may include earnings from working for someone else as an employee or being self-employed.
- Filers may be married or single, with or without children to qualify. Those who do not have children must also meet the age, residency and dependency rules. For a child to qualify, they must have lived with the taxpayer for more than six months in 2016. In addition, the child must meet the age, residency, relationship and joint return rules to qualify.
- U.S. Armed Forces members serving in a combat zone have special rules that apply.
- Lower Your Tax or Get a Refund. Filers who qualify for EITC could pay less federal tax, no tax or even get a refund. The EITC could be worth up to $6,269. The average credit was $2,482 last year.
- Use Free Services. For those who do their own taxes, the best way to file a return to claim EITC is to use IRS Free File. Free brand name software will figure out taxes and the EITC automatically. Combining e-file with direct deposit is the fastest and safest way to get a refund. Free File is only available on IRS.gov/free file.
Taxpayers can also get free help preparing and e-filing their return to claim the EITC. The IRS Volunteer Income Tax Assistance, or VITA program, offers free help at thousands of sites around the country. Get help with health care law tax provisions with Free File or VITA. Refunds Held Until February 15. Beginning in 2017, if taxpayers claim the Earned Income Tax Credit or Additional Child Tax Credit on their tax return, the IRS must hold their refund until at least February 15. This applies to the entire refund, even the portion not associated with these credits. However, the IRS will begin accepting and processing tax returns once the filing season begins. Taxpayers should file as usual. There is no need to wait until February 15. For more on EITC, see IRS Publication 596, Earned Income Credit. It’s available in English and Spanish on IRS.gov.
- Refunds Held Until February 15. Beginning in 2017, if taxpayers claim the Earned Income Tax Credit or Additional Child Tax Credit on their tax return, the IRS must hold their refund until at least February 15. This applies to the entire refund, even the portion not associated with these credits. However, the IRS will begin accepting and processing tax returns once the filing season begins. Taxpayers should file as usual. There is no need to wait until February 15.
The IRS is sending Letter 5025-H to tax preparers who completed returns claiming the Earned Income Tax Credit 1/27/17
The IRS is sending Letter 5025-H to tax preparers who completed returns claiming the Earned Income Tax Credit for taxpayers reporting income they received as household employees but without a Form W-2 to substantiate the income. These preparers may not have met their EITC due diligence requirements. Learn more about this letter and other due diligence information by visiting the EITC Central page on IRS.gov.
Work as a household employee is done in the home of an individual or family. The homeowner provides the necessary supplies, determines the type of work done, and how to complete it. Examples of household employees are babysitters, caretakers, house cleaning workers, domestic workers, drivers, health aides, housekeepers, maids, nannies, private nurses, and yard workers.
An employer is required to report income paid to a household employee on Form W-2 or Form 1099 if that employee earned $2,000 or more in 2016. If a household employee earned less than $2,000 from each individual household in 2016, the household employee will not receive any Forms W-2 or 1099. However, household employees may be considered self-employed, and may be required to file a Schedule C, Profit or Loss from Business (Sole Proprietorship). All household employees must keep records of who they worked for, how often, how much they were paid, and when. The records must show the employers’ names, telephone numbers, addresses where they worked, and payment receipts. Your clients will need to provide this information in case of an audit.
A paid preparer must take extra steps to ensure returns they prepare claiming the EITC are complete and correct.
IRS warns of the return of the W2 Scam aimed at tax and payroll professionals 1/26/17
Cybercriminals tricked payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns for tax refunds.
This phishing variation is known as a “spoofing” e-mail. It will contain, for example, the actual name of the company chief executive officer. In this variation, the “CEO” sends an email to a company payroll office or human resource employee and requests a list of employees and information including SSNs. The following are some of the details that may be contained in the emails:
- Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
- Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).
- I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.
IRS web page lets you find out how much you owe 1/9/17
If you’re an individual taxpayer, you can use this tool to find out:
- Your payoff amount, updated for the current calendar day, and
- the balance for each tax year for which you owe. Your balance will update no more than once every 24 hours, usually overnight.
Once you view your balance, you can immediately choose a payment option. The IRS recommends that you make a note of the amount before doing so.
To register for this service, you need:
- Your Social Security Number;
- date of birth;
- filing status;
- mailing address from latest tax return;
- access to your email account;
- your personal account number from a credit card, mortgage, home equity loan, home equity line of credit or car loan; and
- a mobile phone with your name on the account.
Use Publication 2043 to Set Refund Expectations for 2017 1/6/17
IRS Publication 2043, IRS Refund Information Guidelines for the Tax Preparation Community, was updated for 2017. The publication provides the latest refund information and guidelines to advise clients who are expecting refunds. This year’s update includes information about a new law that requires the IRS to hold refunds claiming the Earned Income Tax Credit and the Additional Child Tax Credit. The IRS will begin to release EITC/ACTC refunds starting February 15. However, these refunds likely will not reach taxpayers until the week of February 27.