What You Need to Know About the Child and Dependent Care Tax Credit
Don’t overlook the Child and Dependent Care Tax Credit. It can reduce the taxes you pay. Here are 10 facts from the IRS about this important tax credit: 1. Child, Dependent or Spouse. You may be able to claim the credit if you paid someone to care for your child, dependent or spouse last year. 2. Work-Related Expense. The care must have been necessary so you could work or look for work. If you are married, the care also must have been necessary so your spouse could work or look for work. This rule does not apply if your spouse was disabled or a full-time student. 3. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care. 4. Earned Income. You must have earned income for the year, such as wages from a job. If you are married and file a joint tax return, your spouse must also have earned income. Special rules apply to a spouse who is a student or disabled. 5. Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more. 6. Dependent Care Benefits. If your employer gives you dependent care benefits, special rules apply. For more on these rules see Form 2441 Child and Dependent Care Expenses. 7. Qualifying Person’s SSN. You must include the Social Security number of each qualifying person to claim the credit. 8. Care Provider Information. You must include the name, address andtaxpayer identification number of your care provider on your tax return. 9. Form 2441. You file Form 2441 with your tax return to claim the credit. 10. IRS Free File. You can use IRS Free File to prepare and e-file your federal tax return, including Form 2441, Child and Dependent Care Expenses, for free. Free File is the fastest and easiest way to file your tax return and it’s only available at IRS.gov/freefile. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights Explore your rights and our obligations to protect them on IRS.gov.
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This year, you may receive one or more forms that provide information about your 2015 health coverage you had in 2015. These forms are 1095-A, 1095-B and 1095-C. This tip is part of a series that answers your questions about these forms.
Form 1095-B, Health Coverage, provides you with information about your health care coverage if you, your spouse or your dependents enrolled in coverage through an insurance provider or self-insured employer last year. Here are the answers to questions you’re asking about Form 1095-B: Will I get a Form 1095-B?
1. Crop insurance. Insurance payments from crop damage count as income. Generally, you should report these payments in the year you get them.
2. Sale of items purchased for resale. If you sold livestock or items that you bought for resale, you must report the sale. Your profit or loss is the difference between your selling price and your basis in the item. Basis is usually the cost of the item. Your cost may also include other expenses such as sales tax and freight. 3. Weather-related sales. Bad weather such as a drought or flood may force you to sell more livestock than you normally would in a year. If so, you may defer tax on the gain from the sale of the extra animals. 4. Farm expenses. Farmers can deduct ordinary and necessary expenses they paid for their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense means a cost that is proper for that business. 5. Employee wages. You can deduct wages you paid to your farm’s full- and part-time workers. You must withhold Social Security, Medicare and income taxes from their wages. 6. Loan repayment. You can only deduct the interest you paid on a loan if the loan is used for your farming business. You can’t deduct interest you paid on a personal loan. 7. Net operating losses. If your expenses are more than income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid in prior years. You may also be able to lower your tax in future years. 8. Farm income averaging. You may be able to average some or all of the current year's farm income by spreading it out over the past three years. This may cut your taxes if your farm income is high in the current year and low in the prior three years. 9. Tax credit or refund. You may be able to claim a tax credit or refund of excise taxes you paid on fuel used on your farm for farming purposes. 10. Farmers Tax Guide. For more details on this topic see Publication 225, Farmer’s Tax Guide. You can get it on IRS.gov/forms anytime. You can order it on IRS.gov/orderforms to have it mailed to you. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov. Additional IRS Resources: IRS Tax Tip 2016-03, January 21, 2016
Most people file a tax return because they have to, but even if you don’t, there are times when you should. You may be eligible for a tax refund and not know it. Here are six tips to help you find out if you should file a tax return:
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov. The theft of your identity, especially personal information such as your name, Social Security number, address and children’s names, can be traumatic and frustrating. In this online era, it’s important to always be on guard.
The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference. Here are seven steps you can make part of your routine to protect your tax and financial information: 1. Read your credit card and banking statements carefully and often – watch for even the smallest charge that appears suspicious. (Neither your credit card nor bank – or the IRS – will send you emails asking for sensitive personal and financial information such as asking you to update your account.) 2. Review and respond to all notices and correspondence from the Internal Revenue Service. Warning signs of tax-related identity theft can include IRS notices about tax returns you did not file, income you did not receive or employers you’ve never heard of or where you’ve never worked. 3. Review each of your three credit reports at least once a year. Visitannualcreditreport.com to get your free reports. 4. Review your annual Social Security income statement for excessive income reported. You can sign up for an electronic account at www.SSA.gov. 5. Read your health insurance statements; look for claims you never filed or care you never received. 6. Shred any documents with personal and financial information. Never toss documents with your personally identifiable information, especially your social security number, in the trash. 7. If you receive any routine federal deposit such as Social Security Administrator or Department of Veterans Affairs benefits, you probably receive those deposits electronically. You can use the same direct deposit process for your federal and state tax refund. IRS direct deposit is safe and secure and places your tax refund directly into the financial account of your choice. To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. You also can read Publication 4524, Security Awareness for Taxpayers. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov. The Internal Revenue Service, the states and the tax industry urge you to be safe online and remind you to take important steps to help protect yourself against identity theft.
Taxes. Security. Together. Working in partnership with you, we can make a difference. Scammers, hackers and identity thieves are looking to steal your personal information – and your money. But there are simple steps you can take to help protect yourself, like keeping your computer software up-to-date and giving out your personal information only when you have a good reason. We all have a role to play to protect your tax account. There are just a few easy and practical steps you can take to protect yourself as you conduct your personal business online. Here are some best practices you can follow to protect your tax and financial information: 1. Understand and Use Security Software. Security software helps protect your computer against the digital threats which are prevalent online. Generally, your operating system will include security software or you can access free security software from well-known companies or Internet providers. Other options may have an annual licensing fee and offer more features. Essential tools include a firewall, virus/malware protection and file encryption if you keep sensitive financial/tax documents on your computer. Security suites often come with firewall, anti-virus and anti-spam, parental controls and privacy protection. File encryption to protect your saved documents may have to be purchased separately. Do not buy security software offered as an unexpected pop-up ad on your computer or email! It’s likely from a scammer. 2. Allow Security Software to Update Automatically. Set your security software to update automatically. Malware – malicious software – evolves constantly and your security software suite is updated routinely to keep pace. 3. Look for the “S” for encrypted “https” websites. When shopping or banking online, always look to see that the site uses encryption to protect your information. Look for https at the beginning of the web address. The “s” is for secure. Unencrypted sites begin with an http address. Additionally, make sure the https carries through on all pages, not just the sign-on page. 4. Use Strong Passwords. Use passwords of at least 10 to 12 characters, mixing letters, numbers and special characters. Don’t use your name, birthdate or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share your password with anyone. Calls, texts or emails pretending to be from legitimate companies or the IRS asking you to update your accounts or seeking personal financial information are generally scams. 5. Secure your wireless network. A wireless network sends a signal through the air that allows you to connect to the Internet. If your home or business wi-fi is unsecured it also allows any computer within range to access your wireless and steal information from your computer. Criminals also can use your wireless to send spam or commit crimes that would be traced back to your account. Always encrypt your wireless. Generally, you must turn on this feature and create a password. 6. Be cautious when using public wireless networks. Public wi-fi hotspots are convenient but often not secure. Tax or financial Information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hotspot does not require a password, it probably is not secure. If you are transmitting sensitive information, look for the “s” in https in the website address to ensure that the information will be secure. 7. Avoid phishing attempts. Never reply to emails, texts or pop-up messages asking for your personal, tax or financial information. One common trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels. To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. Also read Publication 4524, Security Awareness for Taxpayers. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov. The Internal Revenue Service today reminded eligible employees that now is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2016.
FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers this fall are offering their employees the option to participate during the 2016 plan year. Interested employees wishing to contribute during the new year must make this choice again for 2016, even if they contributed in 2015. Self-employed individuals are not eligible. An employee who chooses to participate can contribute up to $2,550 during the 2016 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA. Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures. Under the use or lose provision, participating employees often must incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option. Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year—for example, an employee with $500 of unspent funds at the end of 2016 would still have those funds available to use in 2017. Under the grace period option, an employee has until 2½ months after the end of the plan year to incur eligible expenses—for example, March 15, 2017, for a plan year ending on Dec. 31, 2016. Employers can offer either option, but not both, or none at all. Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found in Publication 969 , available on IRS.gov. When you apply for assistance to help pay the premiums for health coverage through the Health Insurance Marketplace, the Marketplace will estimate the amount of the premium tax credit that you may be able to claim. The Marketplace will use information you provide about your family composition, your projected household income, whether those that you are enrolling are eligible for other non-Marketplace coverage, and certain other information to estimate your credit.
Here are three things you should consider during the Health Insurance Marketplace Open Enrollment period: 1. Advance credit payments lower premiums - You can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums. These payments are called advance payments of the premium tax credit or advance credit payments. If you do not get advance credit payments, you will be responsible for paying the full monthly premium. 2. A tax return may be required - If you received the benefit of advance credit payments, you must file a tax return to reconcile the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit. You must file an income tax return for this purpose even if you are otherwise not required to file a return. 3. Credit can be claimed at tax time - If you choose not to get advance credit payments, or get less than the full amount in advance, you can claim the full benefit of the premium tax credit that you are allowed when you file your tax return. This will increase your refund or lower the amount of tax that you would otherwise owe. For more information about open season enrollment, which runs through January 31, 2016, visit Healthcare.gov. See our Questions and Answers on IRS.gov/ca for information about the premium tax credit.
The Internal Revenue Service reminds taxpayers that the earlier in the year they check their withholding, the easier it will be to get the right amount of tax withheld.
Besides wages, income tax is often withheld from other types of income, such as pensions, bonuses, commissions and gambling winnings. Ideally, taxpayers should try to match their withholding with their actual tax liability. If not enough tax is withheld, they will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, they will lose the use of that money until they get their refund. This is the first in a series of weekly tax preparedness releases designed to help taxpayers begin planning to file their 2015 return. When Should Taxpayers Check their Withholding?
Use the IRS Withholding Calculator on IRS.gov. This easy-to-use tool can help figure the taxpayer’s federal income tax withholding so their employer can withhold the correct amount from their pay. This is particularly helpful if they've had too much or too little withheld in the past, their situation has changed, or they started a new job. Taxpayers may also use the worksheets and tables in Pub 505:TaxWithholding and Estimated Tax, to see if they are having the right amount of tax withheld. How to Change the Amount being withheld Events during the year may change a taxpayer’s marital status or the exemptions, adjustments, deductions, or credits they expect to claim on their return. When this happens, taxpayers may need to give their employer a new Form W-4, Employee's Withholding Allowance Certificate to change their withholding status or number of allowances. Generally, taxpayers should give their employer a new Form W–4 within 10 days after either:
Other Considerations
Find more information on this and other tax topics by visiting:www.irs.gov/Individuals. The Affordable Care Act requires you and each member of your family to have qualifying health care coverage, qualify for an exemption from the responsibility to have minimum essential coverage, or make an individual shared responsibility payment when you file your federal income tax return. For purposes of ACA, qualifying health care coverage is also known as minimum essential coverage.
Minimum essential coverage includes: Health plans offered in the individual market – plans offered by a health insurance issuer licensed by a state, including a qualified health plan offered through the federally-facilitated or a state-based Health Insurance Marketplace Grandfathered health plans – plans that were in existence on March 23, 2010 and haven’t been changed in ways that substantially cut benefits or increase costs for consumers – for more information, visit HealthCare.gov Government-sponsored programs
For more information about minimum essential coverage, visit IRS.gov/aca andHealthCare.gov. |
AuthorJessica Clark has over 12 years experience in the accounting industry. Archives
November 2016
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