Archive for Children

Student Loan Applications and the IRS

December 5, 2010 Children, Student Loan

Preparing for college often means applying for student loans to pay for it as well. Every year students struggle and stress while trying to complete the Free Application for Federal Student Aid (FAFSA).

Completing your student financial aid application is now easier than ever. Department of Education/Federal Student Aid, mandated through the American Recovery and Reinvestment Act, has made the FAFSA process simpler by partnering with the IRS to provide tax data needed to complete the FAFSA on the Web (FOTW) via the IRS’ Federal Student Aid-Datashare tool.

During the application process, you or dependent uses a Personal Identification Number (PIN) to access the optional tool. After additional authentication is achieved, the tool retrieves your tax data and displays it on your web browser. You can then choose to skip the use of the tool or securely transfer the tax data into the FOTW and print it for future use. You can save time completing the financial aid application by using this innovative data retrieval tool.

Who can use it? If you or your dependent meet the following criteria, you’ll be given the option to retrieve, display and transfer your IRS tax information:

• If you filed a 2010 tax return
• If you have a valid Social Security Number
• If you have a Federal Student Aid PIN. If you do not have a PIN, you will be given the option to apply for one
• If your marital status has not changed since Dec. 31, 2010.

Who should not use it? If any of the following conditions apply to you or your dependent, you should not use this tool:

• If you filed an amended federal tax return for 2009 or 2010
• If you did not file a federal IRS tax return for 2009 or 2010
• If your 2009 or 2010 IRS tax filing status is married filing separately
• If you filed both a federal IRS tax return and a foreign return

How does the FSA-D tool work with FAFSA on the Web?

If you choose to use the tool to gain access to tax information, you should follow these steps:

• Enter your PIN or apply for a PIN (If one was not previously secured).
• Click on “Link to IRS” to begin.
• Authenticated data will be displayed; however, you will need to provide additional information to further validate your identity. You must enter the information exactly as it appears on your prior year tax return.
• Once authenticated, the previous year tax return data will be displayed, along with the corresponding FAFSA question numbers. You will then be given the option to transfer the data or return to the FAFSA without transferring the data.
• If you select the “Transfer” option, the tax information provided will populate to the appropriate FAFSA question.
• After the FAFSA is populated, the IRS session will end and you will be returned to the FOTW.
• Before submitting your information, please be sure to print the federal tax information page for your records.

FAFSA on the Web and the complimentary FSA-D application are available at www.fafsa.gov in both English and Spanish-language versions. Additional information and frequently asked questions about the IRS’ FSA-D tool can be found at http://www.fafsa.ed.gov/linktoirs_faq.htm.

Completing the FAFSA no longer has to be stressful or time-consuming. Preparing for college is just a click away. Go online to www.fafsa.gov and complete your FAFSA today!

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Six Tips for Students with a Summer Job

July 9, 2010 Children, Employee Business Expense, Employment Tax, Family, FICA, Paying Taxes, Payroll Tax Problems, Personal Service Corporation, Self Employ, Small Business, Social Security Tax, Sole Proprietor, Tax Guidance & Preparation

School’s out and many students now have a summer job. Some students may not realize they have to pay taxes on their summer income. Here are the six things the IRS wants everyone to know about income earned while working a summer job.

  1. All employees fill out a W-4, Employee’s Withholding Allowance Certificate, when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs you will want to make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on IRS.gov.

  2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.

  3. Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.

  4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

  5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

  6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

  • You are in the business of delivering newspapers.

  • All your pay for these services directly relates to sales rather than to the number of hours worked.

  • You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

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Summertime Child Care Expenses May Qualify for a Tax Credit

July 7, 2010 Child Tax, Children, Dependent, Family, Self Employ, Small Business, Tax Credit, Tax Problems & Requests, Tax Relief, Taxable Income

Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return. Here are five facts the IRS wants you to know about a tax credit available for child care expenses.

  1. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

  2. The cost of day camp may count as an expense towards the child and dependent care credit. Expenses for overnight camps do not qualify.

  3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if you qualify for the credit.

  4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.

  5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information check out IRS Publication 503, Child and Dependent Care Expenses.

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Affordable Care Act Provides Expanded Tax Benefit to Health Professionals Who Received Student Loan Relief for Working in Underserved Areas

June 16, 2010 Children, Health Care Tax Credit, Health Insurance, Student Loan

As part of a larger Administration announcement on efforts to strengthen the health care workforce, the Internal Revenue Service today announced that under the Affordable Care Act health care professionals who received student loan relief under state programs that reward those who work in underserved communities may qualify for refunds on their 2009 federal income tax returns as well as an annual tax cut going forward.

“Doctors and nurses who choose to practice in underserved areas make a great contribution to their local communities,” Commissioner Doug Shulman said. “By expanding the tax exclusion for student loan forgiveness, the Affordable Care Act provides an even greater incentive to practice medicine in areas that need it most.”

The Affordable Care Act included a change in the law, effective in 2009, that expands a tax exclusion for amounts received by health professionals under loan repayment and forgiveness programs. Prior to the new law, only amounts received under the National Health Service Corps Loan Repayment Program or certain state loan repayment programs eligible for funding under the Public Health Service Act qualified for a tax exclusion.

The Affordable Care Act expands this tax exclusion to include any state loan repayment or loan forgiveness programs intended to increase the availability of health care services in underserved areas or health professional shortage areas and makes this exclusion retroactive to the 2009 tax year.

Health care professionals participating in these programs who have reported income from repaid or forgiven loan amounts on their 2009 returns, possibly after receiving a Form W-2, Wage and Tax Statement, or Form 1099, may be due refunds. Those who believe they qualify for this relief may want to consult their state loan program offices to determine whether the program is covered by the new law.

Health care professionals who have not yet filed for 2009 need not report eligible loan repayment or forgiveness amounts when they file. Those who have already filed may exclude eligible amounts by filing Form 1040X, Amended U.S. Individual Income Tax Return. This form can be downloaded from this website or obtained by calling the IRS toll-free at 1-800-TAX-FORM (1-800-829-3676). Individuals filing Form 1040X to claim this exclusion should write “Excluded student loan amount under 2010 Health Care Act” in the Explanation of Changes box.
Health care professionals may request an employer or other issuer to provide a Form W-2c, Corrected Wage and Tax Statement, or 1099 and may attach the corrected form to the Form 1040X. However, the Form 1040X may also be filed without attaching a corrected form.
An individual whose employer withheld and paid taxes under the Federal Insurance Contributions Act (FICA) on payments covered under the new exclusion may request that the employer seek a refund of withheld FICA on the employee’s behalf. And because employers also pay a portion of the FICA tax, the employer also may also be entitled to a refund.

To obtain a refund, an employer should file a separate Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, for each Form 941, Employer’s Quarterly Federal Tax Return, which needs to be corrected. An employer filing a Form 941-X is also required to file a Form W-2c for each employee who benefits from the exclusion.

John R. Dundon, EA – 720-234-1177

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Child and Dependent Care Credit

March 8, 2010 Child Tax, Children, Dependent, Tax Credit

Did you pay someone to care for a child, spouse, or dependent last year? If so, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are the top 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses.

  1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

  2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

  3. You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.

  4. The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.

  5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

  6. The qualifying person must have lived with you for more than half of 2009. However, see Publication 503, Child and Dependent Care Expenses, regarding exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.

  7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.

  8. For 2009, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

  9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.

  10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.

Beginning with 2009 tax returns, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers, has been eliminated. 1040A filers must file form 2441 starting for tax year 2009.

Helpful Links:
Publication 503, Child and Dependent Care Expenses (PDF 167K)
Form W-10, Dependent Care Provider’s Identification and Certification (PDF 31K)
Form 2441, Child and Dependent Care Expenses (PDF)
Form 2441 Instructions (PDF 32K)
Publication 17, Your Federal Income Tax (PDF 2,075K)
Tax Topic 602

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Child Tax Credit Facts

March 8, 2010 Child Tax, Children

The Child Tax Credit is a valuable credit that can significantly reduce your tax liability. Here are 10 important facts from the IRS about this credit and how it may benefit your family.

  1. Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.

  2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.

  3. Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2009.

  4. Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

  5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.

  6. Dependent Test – You must claim the child as a dependent on your federal tax return.

  7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.

  8. Residence Test – The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.

  9. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.

  10. Additional Child tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

    For more information, see IRS Publication 972, Child Tax Credit, available at the IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    Additional Links:
    Form 8812, Additional Child Tax Credit (PDF 56K)
    Publication 972, Child Tax Credit (PDF 128K)

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Your Child’s Investment Income – tax implications

February 24, 2010 Child Tax, Children, Dependent, Investment Income

The following facts will help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate.

  1. Investment Income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.

  2. Age Requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meet one of three age requirements for 2009: The child was born after January 1, 1992. The child was born after January 1, 1991, and before January 2, 1992, and has earned income that does not exceed one-half of their own support for the year. The child was born after January 1, 1986, and before January 2, 1991, and a full-time student with earned income that does not exceed one-half of the child’s support for the year.

  3. Form 8615 To figure the child’s tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child’s federal income tax return.

  4. Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.

Links:
Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,800 (PDF 49K)
Form 8615, Instructions (PDF 24K)
Form 8814, Parent’s Election to Report Child’s Interest and Dividends (PDF 43K)
Publication 929, Tax Rules for Children and Dependents (PDF 220K)

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Tax treatment for your children

January 13, 2010 Adoption, Child Tax, Children, Earned Income Tax Credit, Education Expense, Estimated Taxes, Gift Tax, Refundable Tax Credit, Student Loan, Tax Credit, Tax Deductible Expenses, Tax Guidance & Preparation, Tax Relief, Uncategorized

Got Kids? They may have an impact on your tax situation. Listed below are the top 10 things the IRS wants you to consider if you have children.

  1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

  2. Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax. For more information see IRS Publication 972, Child Tax Credit.

  3. Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.

  4. Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

  5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.

  6. Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

  7. Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

  8. Coverdell Education Savings Account This savings account is used to pay qualified educational expenses at an eligible educational institution. Contributions are not deductible, however, qualified distributions generally are tax-free. For more information see IRS Publication 970, Tax Benefits for Education.

  9. Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970.

  10. Student Loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

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Dependents and Exemptions

January 7, 2010 Child Tax, Children, Deductible Expense, Dependent, Exemption, Family, Tax Filing Status, Tax Guidance & Preparation, Tax Problems & Requests

When you prepare to file your tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here are five important facts the IRS wants you to know about dependents and exemptions before you file your 2009 tax return.

  1. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.

  2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.

  3. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.

  4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

  5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

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American Opportunity Credit for Undergraduates

November 19, 2009 Children, Dependent, Education Expense, Tax Credit

A new tax credit for students attending the first four-years of college. The credit is worth up to $2,500, 40% of which is refundable (meaning it can increase your tax refund even if you have zero tax liability). This new credit is more generous than the Hope Credit (which it temporarily replaces for 2009 and 2010) and the Lifetime Learning Credit (which remains available for postgraduates).

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