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| Tax School Homepage |
| Child and Dependent Care Credit |
| The total expenses that may be used to calculate the credit are capped at $3,000 for one qualifying individual. The expenses qualifying for the computation of the child and dependent care credit must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from gross income. In general, you can exclude up to $5,000 for dependent care benefits received from your employer. The expenses qualifying for the computation of the credit must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from gross income. In general, the expenses claimed may not exceed your earned income or your spouse's earned income, whichever is less. |
| For purposes of the child and dependent care credit, a qualifying individual is your dependent qualifying child who is under age 13 when the care is provided. Your qualifying individual can also be your spouse who is physically or mentally incapable of self-care and who has the same principal place of abode as you for more than half of the year. In addition, your qualifying individual can be any dependent who is physically or mentally incapable of self-care, and who has the same principal place of abode as you for more than half of the year. |
| For purposes of the child and dependent care credit, an individual is physically or mentally incapable of self-care if, as a result of a physical or mental defect, the individual is incapable of caring for his or her hygiene or nutritional needs and whom requires the full-time attention of another person for the individual's safety or safety of others. A noncustodial parent may not treat a child as a qualifying individual for purposes of the child and dependent care credit, even if the noncustodial parent may claim an exemption for the child. |
| You must exercise due diligence in claiming the child and dependent care credit. If you do not provide information regarding the care provider, you may still be eligible for the child and dependent care credit if you can show that you exercised due diligence in attempting to provide the required information. |
| Estimated Taxes |
| Estimated tax is the the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. Additionally, estimated tax is used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. Always keep in mind that if you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return. |
| If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. |
| You do not have to pay estimated tax for the current year if you had no tax liability for the prior year, you were a U.S. citizen or resident for the whole year and your prior tax year covered a 12 month period. When figuring your estimated tax for the current year, you can use the worksheet in Form 1040-ES to figure your estimated tax. You should always use your prior year's federal tax return as a guide. Remember that it may be helpful to use your income, deductions, and credits for prior year as a starting point. |
| If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty they owe less than $1,000 in tax after subtracting their withholdings and credits, if they paid at least 90% of the tax for the current year, or if they paid 100% of the tax shown on the return for the prior year, whichever is less. |
| The penalty for underpayment of estimated tax may be waived if the failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty. The penalty may also be waived if you retired (after reaching age 62) or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect. |
| Refund Returns |
| Taxpayers often elect the Direct Deposit option because it is the fastest way of receiving refunds. Providers must accept any Direct Deposit election to qualified accounts in the taxpayer’s name at any eligible financial institution designated by the taxpayer. Additionally, providers should caution taxpayers that some financial institutions do not permit the deposit of joint individual income tax refunds into individual accounts or into check or share draft accounts that are "payable through" another institution. Providers are also obligated to advise taxpayers that they cannot rescind a Direct Deposit election and they cannot make changes to routing transit numbers of financial institutions or to their account numbers after the IRS has accepted the return. Providers can never alter the Direct Deposit information in the electronic record after taxpayers have signed the tax return only if they find a mistake. |
| Payment Plans |
| You may be eligible to apply for an online payment agreement if you are an individual that owes $50,000 or less in combined individual income tax, penalties and interest, and have filed all required returns. You may also be eligible to apply for an online payment agreement if you are a businesses who owes $25,000 or less in payroll taxes and have filed all required returns. |
| Penalties and interest continue to accrue until your balance is paid in full. If you are in danger of defaulting on your payment agreement for any reason, contact the IRS immediately. The IRS will generally not enforce collection actions when an installment agreement is being considered or when the agreement is in effect. The IRS will also not take action for 30 days after a request is rejected or during the period the IRS evaluates an appeal of a rejected or terminated agreement. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Filing Season Program rights reserved. |
| Revised: 12/14/14 |
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