Just because you hardly made
any money does not mean that your employer has not withheld anything from
your check. Depending on how many deductions your claimed on your Form W-4,
you may have had federal tax withheld from your check. Almost everyone pays
social security and Medicare taxes and these are not the kind of taxes you
can get refunded. However, if you had federal withholding or any state tax
withheld, you can get file your federal or state tax returns to get these
refunded to you if you did not make enough money to even file a tax return.
Why would your employer if withhold any money in the first place? You ask.
Well, when you first start your job, your employer usually does always get
your Form W-4 from you right away. Therefore, your employer is obligated to
withhold at a single rate and sometimes with zero exemptions. To avoid any
kind of withholding, it is a good idea to give your employer Form W4
immediately.
If you don't make enough money
to file a tax return, you should still file if you qualify for the Earned
Income Credit, even if you have no dependents. Even if you just earned a $1,
and if you are single, head of household, or qualifying widow or married
with no dependents you can get $2 dollars back as an Earned Income Credit
amount. If you have dependents and you only earned $1 for example, you can
get anywhere from $9 to $11 back as an Earned Income Credit amount. If
you look at the EIC table you can see the different income scenarios. Look
at the Earned Income Credit qualification rules to see if you qualify for
the Earned Income Credit and for how much you qualify.
If you take the EIC even though you are not
eligible and it is determined that your error is due to reckless
or intentional disregard of the EIC rules, you will not allowed
to take the earned income credit for 2 years even if you are otherwise
eligible to do so in this year.
As a tax professional you need
to have many caveats in mind when it comes to the Earned Income Credit
rules. When you prepare tax returns for a fee you have to determine the
eligibility for the Earned Income Credit or face steep penalties. $500 per
taxpayer can really add up. They say that an ounce of prevention is worth a
pound of cure. You don't want to be in front of an Internal Revenue Service
agent frantically trying to figure out how you are going to come up with the
due diligence proof for the 2,000 tax returns you prepared last year.
Imagine two thousand tax returns times $500? That is a million dollars that
you would owe the Internal Revenue Service. Let's say you can negotiate the
million dollars with the IRS. The negotiated figure is still a lot of money.
You must file Form 8862 if your EIC for a year
after 1996 was reduced or disallowed for any reason other than a math or
clerical error. File Form 8862 if for 2 years after the most recent tax year
for which there was a final determination that your EIC claim was due to
reckless or intentional disregard of the EIC rules. Also file Form 8862 if
the reason your EIC was reduced or disallowed in an earlier year was because
it was determined that a child listed on your Schedule EIC was not your
qualifying child. Additionally, if your EIC credit was denied for 10 years
due to fraud, then you must file Form 8862 along with your tax return.
You must abide by the four due
diligence rule requirements. As a tax professional, you must ask all the
questions required on Form 8867. Form 8867 must be used as an interview
worksheet and no question
