Time to File Your 2014 Income Tax Return Center for Economic Progress Tax Clinic 312-630-0280 or TAXCLINIC@economicprogress.org 1
Today s Topics Do you need or want to file a tax return? Filing Status The Earned Income Tax Credit The Child Tax Credit The Child and Dependent Care Credit Benefits Related to Education What Free Filing Assistance is Available?
Who Must File Tax Return for 2014? THEN file a return if your gross IF your filing status is... income is at least * single $10,150 head of household $13,050 married, filing jointly $20,300 married, filing separately $ 3,950 qualifying widow(er) with dependent child $16,350 Or, you MUST file if you had net earnings from self-employment of at least $400. The Interactive Tax Assistant is a great resource: http://www.irs.gov/uac/interactive-tax-assistant-(ita)-1 *An additional standard deduction amount is provided for taxpayers who are 65 years old or older. 3
What is Gross Income? Wages, salaries, tips Interest and dividends Alimony received Self-employment income Distributions from pensions, IRA s, other retirement accounts (see IRS Publication 590 for more information). Income from discharge of indebtedness Gross income does not include social security benefits unless ½ of social security plus other income is more than $25,000 ($32,000 if married filing jointly). See IRS Publication 915 for more information. 4
Who Should File Tax Return You had income tax withheld from your pay (generally be withholding from wages, Form W-2, or from unemployment compensation, Form 1099-G). You had dependents You qualify for the Earned Income Tax Credit You qualify for the Additional Child Tax Credit - Earned Income Credit - Additional Child Tax Credit Even if you do not have to file, you should file a tax return if you can get money back! 5
The Dependency Exemption ($3,950) Qualifying Child: Under 19, or under 24 if a full time student Younger than you Relationship (child, stepchild, adopted child, sibling, stepsibling, or descendant of any of these). Lived with you for > ½ the year. Child did not provide for > ½ of his/her own support. Qualifying Relative (QR): Not a Qualifying Child of another taxpayer who has a filing requirement or claims the EITC. QR is related to you, OR can be anyone as long as lived with you for the entire year. If QR is related, no residency requirement. You provided for > ½ of the QR s support. QR had income of less than $3,900. 6
Filing Status: Why does it matter? Standard Deduction Amounts for 2014 Single: $6,200 Married Filing Jointly: $12,400 Married Filing Separately: $6,200 Head of Household: $9,100 Qualifying Widow(er) with Dependent Child: $12,400 For an individual who may be claimed as a dependent by another taxpayer, the standard deduction cannot exceed the greater of $1,000 OR ($350 + the individual s earned income). The additional standard deduction amount for the aged or the blind is $1,200; that amount is increased to $1,500 if the taxpayer is single and not a surviving spouse. 7
Filing Status: Head of Household Requirements: You are unmarried or considered unmarried on the last day of the year. Considered unmarried = unmarried, legally separated, married but have lived apart for at least the last six months of the year. You paid > ½ the cost of keeping up a home for the year. A qualifying child or qualifying relative lived with you in the home for > ½ the year. School is temporary absence and doesn t count. If the "qualifying person" is your dependent parent, he or she does not have to live with you. 8
Filing Status Married Filing Jointly: You re married as of the close of the taxable year. However, if H+W are living apart (for the last six months of the year) and H has child for > ½ the year and provides >1/2 of support, H can filed as Head of Household. However, W will be married and would file Married Filing Separately. You do not file as Single if you re legally married. 9
The Earned Income Tax Credit: How does it work? 10
The Earned Income Tax Credit: The Numbers MAXIMUM INCOME single or head of household married filing jointly no children $14,340 $19,680 one qualifying child $37,870 $43,210 two qualifying children $43,038 $48,378 three qualifying children $46,227 $51,567 MAXIMUM EITC no children $487 one qualifying child $3,250 two qualifying children $5,372 three qualifying children $6,044 11
The Earned Income Tax Credit: General Requirements (IRS Publication 596) Taxpayer and qualifying children must have a valid social security number. Taxpayer must have earned income either wages or selfemployment. Taxable disability benefits received under an employer s disability retirement plan are considered earned income until the taxpayer reaches minimum retirement age. Disability insurance payments received from a disability insurance policy where the premiums were paid by the taxpayer are not earned income. Taxpayer cannot have investment income over $3,200. Taxpayer cannot use married filing separately filing status. 12
Who is a qualifying child for the EITC? 1. Age The child must be under age 19 at the end of the tax year or under age 24 if the child is a full-time student. The child must be younger than the taxpayer. A child who is permanently and totally disabled can be any age. 2. Relationship The child must be the taxpayer s child, stepchild, adopted child, foster child, sibling, stepsibling or a descendent of any of these relatives. 3. Residency The child must live with the taxpayer, in the United States, for more than half of the tax year. 4. Support There is no support requirement for a qualifying child for EITC. 13
Watch out!: There are penalties for improper EITC claims. Taxpayer makes a mistake: No EITC the following year unless Form 8862 is submitted Taxpayer recklessly disregards the EITC rules: No EITC for two subsequent years Taxpayer fraudulently claims EITC: No EITC for ten years Paid preparer fails to exercise due diligence: Preparer pays a $500 penalty per tax return 14
The Child Tax Credit A refundable credit worth up to $1,000 per child. Requirements: 1. Child must be under age 17 (no exception for students or the disabled). 2. Child must be taxpayer s child, stepchild, adopted child, foster child, sibling, stepsibling, or descendent of any of these. 3. Child must have lived in the U.S. with the taxpayer for more than half the tax year. 4. Child did not provide over ½ of his/her own support. 15
The Child Care Credit A nonrefundable credit of up to $3,000 (or $6,000, if more than one child) to help parents who work child care that enables you to work! Requirements: 1. Child must be under age 13 or disabled. 2. Child must be taxpayer s child, stepchild, adopted child, foster child, sibling, stepsibling, or descendent of any of these. 3. Child must have lived with the taxpayer for more than half the tax year. 4. Child did not provide over ½ of his/her own support. 16
Benefits Related to Education American Opportunity Credit Who? Full-time undergraduate in a degree program. Maximum benefit: $1,000 refundable credit + $1,500 nonrefundable credit. You need to have spent $4,000 for maximum benefit. Eligible expenses include tuition, fees, books, course materials. 17
Benefits Related to Education Lifetime Learning Credit Who? Just taking 1-2 classes or in graduate school. Does not need to be in degree program if class improves job skills. Maximum benefit: $2,000 nonrefundable credit. You need to have spent $10,000 for maximum benefit. Eligible expenses include tuition and fees only. 18
Benefits Related to Education Tuition and Fees Deduction Who? Just taking 1-2 classes or in graduate school; does not need to be in degree program. Maximum benefit: $2,000 adjustment to income. Eligible expenses include tuition and fees only. 19
Benefits Related to Education Student Loan Interest Deduction Who? Former student paying on loans from a full-time degree program. Maximum benefit: $2,500 adjustment to income. Eligible expenses include loans used to pay for tuition, fees, books, course materials, room & board, transportation. 20
Other Filing Issues Refunds should be directly deposited into bank accounts because it is safer and faster. Employees should carefully determine withholding allowances to avoid having too much withheld. Use the IRS W-4 withholding calculator, which can be found on www.irs.gov. Self-employed taxpayers must keep records of income and expenses throughout the tax year. Self-employed taxpayers who anticipate owing more than $1,000 in tax must also make quarterly payments to IRS on April 15, June 15, September 15, and January 15 using Form 1040ES. Refer to IRS Publication 334 for more information. 21
Most importantly READ your tax return carefully and ask questions before you sign. Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. 22
The IRS talks about the most common Tax Return errors Incorrect or missing social security numbers. Incorrect/misspelled names for dependents. Names should appear exactly as they do on the Social Security card. Math errors. Figuring out credits. Incorrect Bank Account Numbers for direct deposit. Sign and date the return. If Married Filing Jointly, both spouses must sign and date. 23
Do you need help? Who is CEP? The Center for Economic Progress (CEP) helps hard-working, low-income families move from financial uncertainty to financial security. We offer a fullrange of services to help families acquire the knowledge, skills, tools and confidence to make sound financial choices. 1. Tax Preparation 2. Legal Services at the Tax Clinic 3. Financial Coaching and Access to Financial Products 24
Free Filing Assistance Income maximum: $25,000 for individuals and $50,000 for families. You MUST bring with you to the site: All W-2s and 1099s (if any) for the year involved Social Security cards or Individual Taxpayer Identification Numbers (ITINs) for all family members Valid photo ID for the person filing Copy of previous year s tax return, if possible Bank account number and routing number if you choose to direct deposit your tax refund Property tax bill Amount spent on college expenses Go to www.economicprogress.org to find a location near you. 25
Do You Have Tax Dispute With the IRS? Dispute your liability - The IRS erroneously disallowed your business expenses - The IRS erroneously disallowed your Earned Income Credit, Adoption Tax Credit, Child Tax Credit, filing status, etc. - The IRS claims you underreported income or cancellation of debt on your tax return Stop the levy and/or negotiate an affordable payment option - Currently Not Collectable Status - Installment Agreement - Offer in Compromise Call our Tax Clinic at 312-630-0280 if you have a tax dispute with the IRS! 26
Contacting Us Center for Economic Progress 312-630-0280 www.economicprogress.org 27
Questions? 28