Income Taxes – Page 2 – M Hernandez Income Taxes Bookkeeping

Child Tax Credit (CTC)

The federal child tax credit (CTC) is a partially Refundable credit that allows low- and moderate-income families to reduce their tax liability dollar-for-dollar by up to $2,000 for each qualifying child. The credit phases out depending on the modified adjusted gross income amounts for single filers or joint filers.

Child Tax Credit Qualification

For a taxpayer to qualify for the credit, any children must meet several criteria: age, relationship, support, dependent, citizenship, and residence. The child must be under age 17, biologically-related to and claimed as a dependent by the taxpayer applying for the credit, not provide more than 50 percent of their own financial support, be a U.S. citizen, U.S. national, or U.S. resident alien, and have lived with the taxpayer for more than half of the preceding calendar year. (Step-children and foster children may qualify if they meet certain requirements.) The Tax Cuts and Jobs Act also added a requirement that parents be able to verify a valid Social Security Number (SSN) for each eligible dependent.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is used to offset income and payroll taxes for low-income workers. It was created to mainly promote work and to reduce poverty. Therefore, it is only available to those who are employed.

At the same time, the EITC is complicated, has a consistently high error rate, and creates a disincentive to work once recipients reach a certain income level. It also imposes a marriage penalty, reducing the credit’s value for married workers, and creates disparity between workers with and without children.

Taxpayers generally receive the credit while filing their taxes. This tax credit is refundable.

If you’re a small business and you hire no-employees to perform jobs, you most likely need to send out 1099 to those workers.

What is a 1099 tax form?
Who do I give a 1099 form?
What is a 1096 Form?
Who can help in submitting and filling the forms?

What is a 1099 tax form

A 1099 is an “information filing form”, used to report non-salary income to the IRS for federal tax purposes. 1099’s come in a variety of ways, but most individuals are aware of the 1099-MISC, which is the one we will be covering.

You will need to complete a 1099-MISC if you paid a independent contractor more than $600 in the calendar year.

Other 1099 forms cover income from dividends, prize winnings, credit card forgiveness, and/or multitude of other scenarios. They all have there own 1099 form, which will not be discussed here. Let’s go back and focus on the 1099-MISC form now.

1099-Misc Form: Who do I give a 1099 Form to:

File Form 1099-MISC for each person to whom you have paid during the year:

At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
At least $600 in:
- Rents.
- Services performed by someone who is not your employee.
- Prizes and awards.
- Other income payments.
- Medical and health care payments.
- Crop insurance proceeds.
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Payments to an attorney.
- Any fishing boat proceeds.

In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

1096 Form

The 1096 Form is the Annual Summary and Transmittal of U.S. Information Returns. It is ONLY used if you are mailing the 1099 forms. If you electronically file, this form is not submitted.

Filing forms

The forms are process by a bookkeeper/accountant or you can log on to the IRS and log the information yourself as well.

Category: Income Taxes

Income Tax Credits