How Exemptions and Dependents Can Reduce Taxable Income

Most taxpayers can claim an exemption for themselves and reduce their taxable income on their tax return. They may also be able to claim an exemption for each of their dependents. Each exemption normally allows them to deduct $4,050 on their 2016 tax return. Here are seven key points to keep in mind on dependents and exemptions:

1. Personal Exemptions.  Taxpayers can usually claim exemptions for themselves and their spouses on a jointly filed tax return. For married taxpayers filing separate returns, an exemption can only be claimed for a spouse if that spouse:

• Had no gross income,
• Is not filing a tax return, and
• Was not the dependent of another taxpayer.

2. Exemptions for Dependents.  A dependent is either a child or a relative who meets a set of tests. Taxpayers can normally claim dependents as exemptions. List a Social Security number for each dependent. For more on these rules, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.

3. No Exemption on Dependent’s Return. If a taxpayer can claim a person as a dependent, then that dependent cannot claim a personal exemption on his or her own tax return. This is true even if no one claims that person on a tax return.

4. Dependents May Have to File. A dependent may have to file a tax return. This depends on certain factors like total income, whether they are married and if they owe certain taxes.

5. Exemption Phase-Out.  Taxpayers earning above a certain amount will lose part or all the $4,050 exemption. See Publication 501 for details.

6. E-file Your Tax Return.  The IRS urges taxpayers to kick the paper habit. IRS E-file options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.

7. Try the IRS Online Tool.  Get questions answered by using  the Interactive Tax Assistant tool on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Accounting Software Target of Scammers

By EMILY VALLA

Better Business Bureau

Scammers are always looking for new twists on common scams, especially when it comes to phishing emails. These emails are meant to trick victims into clicking a link and either providing personal information or downloading viruses or malware.

Better Business Bureau warns a new version of this con is circulating as an email alert from accounting software QuickBooks. While anyone may receive this email, scammers are specifically targeting small businesses.

Here’s how this scheme works. You receive an email with the subject line “QuickBooks Support: Change Request.” The message is “confirming” that you changed your business name with Intuit, QuickBooks’ manufacturer. However, you never made such a request. You think it must be a mistake, but fortunately the email contains a link to cancel.

Pause before you click! Scammers know you didn’t make this request, and the link to cancel is simply bait. It downloads malware to your device, which scammers use to capture passwords or hunt for sensitive information on your machine. This can open you up to identity theft.

Similar scams also impersonate personal tax software or banks. Always be wary of unexpected emails that contain links or attachments. Here are some other ways to spot phishing messages.

n Check the reply email address. One easy way to spot an email scam is to look at the reply email. The address should be on a company domain, such as jsmith@company.com. Especially for major companies, be wary of generic addresses from free email providers.

n Check the destination of links. Hover over links to see where they lead. Be sure the link points to the correct domain (www.companyname.com) not a variation, such as companyname.othersite.com or almostcompanyname.com. Scammers can get creative, so look closely.

n Consider how the organization normally contacts you. If an organization normally reaches you by mail, be suspicious if you suddenly start receiving emails or text messages without ever opting in to the new communications.

n Be cautious of generic emails. Scammers try to cast a wide net by including little or no specific information in their fake emails. Be especially wary of messages you have not subscribed to or companies you have never done business with in the past.

n Don’t believe what you see. Just because an email looks real, doesn’t mean it is. Scammers can fake anything from a company logo to the “Sent” email address.

n Have a process in the office. Make sure employees know to not click links in unexpected emails. Have a process of who they should verify with if they are uncertain of an email like this and encourage them not to make “quick fixes” that could be costly.

Emily Valla is the marketplace director for Better Business Bureau Northwest: Idaho and Western Wyoming. Contact her at 208-523-9754 or by emailing emily.valla@thebbb.org.

Things to Remember When Choosing a Tax Preparer

Taxpayers should choose their tax return preparer wisely – with good reason. Taxpayers are responsible for all the information on their income tax return. That’s true no matter who prepares the return. Here are ten tax tips to keep in mind:

1. Check the Preparer’s Qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool helps taxpayers find a tax return preparer with the qualifications that they prefer. The Directory is a searchable and sortable listing of preparers with a credentials or filing season qualifications. It includes the name, city, state and zip code of:

• Attorneys.
• Certified Public Accountants.
• Enrolled Agents.
• Enrolled Retirement Plan Agents.
• Enrolled Actuaries.
• Annual Filing Season Program participants.  

Attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent clients in more limited situations. Non-credentialed preparers who do not participate in the Annual Filing Season Program may only represent clients before the IRS on returns they prepared and signed on or before December 31, 2015.

For more information, check the Understanding Tax Return Preparer Credentials and Qualifications page.

2. Check the Preparer’s History. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.

3. Ask about Service Fees. Avoid preparers who base fees on a percentage of the refund or who boast bigger refunds than their competition. When inquiring about a preparer’s services and fees, don’t give them tax documents, Social Security numbers and other information. Some preparers have improperly used this information to file returns without the taxpayer’s permission.

4. Ask to E-file. Taxpayers should make sure their preparer offers IRS e-file. Paid preparers who do taxes for more than 10 clients generally must file electronically. The IRS has safely processed billions of e-filed tax returns.

5. Make Sure the Preparer is Available. Taxpayers may want to contact their preparer after this year’s April 18 due date. Avoid fly-by-night preparers.

6. Provide Records and Receipts. Good preparers will ask to see a taxpayer’s records and receipts. They’ll ask questions to figure the total income, tax deductions, credits, etc. Taxpayers should not use a preparer who will e-file their return using their last pay stub instead of a Form W-2. This is against IRS e-file rules.

7. Never Sign a Blank Return. Don’t use a tax preparer who asks a taxpayer to sign a blank tax form.

8. Review Before Signing. Before signing a tax return, review it. Ask questions if something is not clear. Taxpayers should feel comfortable with the accuracy of their return before they sign it. They should also make sure that their refund goes directly to them – not to the preparer’s bank account. Review the routing and bank account number on the completed return.

9. Ensure the Preparer Signs and Includes Their PTIN. All paid tax preparers must have a Preparer Tax Identification Number (PTIN). By law, paid preparers must sign returns and include their PTIN.

10. Report Abusive Tax Preparers to the IRS. Most tax return preparers are honest and provide great service to their clients. However, some preparers are dishonest. Report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If a taxpayer suspects a tax preparer filed or changed their return without the taxpayer’s consent, they should file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Taxpayers can get these forms on IRS.gov any time.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

• Tax Topic 254 - How to Choose a Tax Return Preparer
• Choosing a Tax Professional
• How to Make a Complaint About a Tax Return Preparer
• How to Report Suspected Tax Fraud Activity
• IRS Tax Pro Association Partners

Reminder: Employers Must File Forms W-2 by Jan. 31 This Year

The Internal Revenue Service today reminds employers that the due date for filing Forms W-2, the Wage and Tax Statement for their employees for calendar year 2016, is now Jan, 31, 2017. Also, those who hire contract workers and have to file Form 1099-MISC now must file by Jan. 31.

The new deadline applies whether an employer e-files or files a paper Form W-2. Employers who pay an employee $600 or more for the year must file a Form W-2 for each employee with the Social Security Administration.

The new deadline is part of legislation signed into law at the end of 2015 to combat identity-theft related refund fraud.

The Social Security Administration encourages all employers to e-file their Forms W-2 by using its Business Services Online.  Employers who file paper Forms W-2 should file them with the Social Security Administration, Data Operations Center, Wilkes-Barre, PA 18769-0001.

E-filing can save time and effort and helps ensure accuracy. Employers must e-file if they file 250 or more Forms W-2 or W-2c. Employers who are required to e-file but fail to do so may incur a penalty. E-filing can save time and effort and helps ensure accuracy.

The IRS projects that employers will file more than 250 million Forms W-2 this year; the vast majority will be e-filed.

The new rule does not affect the filing deadline for other types of Form 1099 or Forms 1097, 1098, 3921, 3922, or W-2G, which are filed on paper by Feb. 28, 2018, or by April 2, 2018 if filed electronically.

Claim the Earned Income Tax Credit

The Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break for 40 plus years. Yet, one out of every five eligible workers fails to claim it. Here are some things taxpayers should know about the EITC:

• Review Your Eligibility. Taxpayers who worked and earned under $53,505 may qualify for EITC. Filers should review EITC eligibility rules if their household income or family situation has changed. They may qualify for EITC this year, even if they did not in the past. To qualify, a taxpayer must file a federal income tax return claiming the Earned Income Tax Credit.  This is true even if a taxpayer is not otherwise required to file a tax return. Use the EITC Assistant tool to find out about eligibility rules and amounts.
• Know the Rules. Taxpayers need to understand the rules before they claim the EITC. It is important to get this right. Here are some factors to consider:
• Taxpayers who are married and file a separate return do not qualify for the EITC.
• Filers must have a Social Security number valid for employment for themselves, their spouse (if married), and any qualifying child listed on their filed tax return.
• Taxpayers must have earned income. This may include earnings from working for someone else as an employee or being self-employed.
• Filers may be married or single, with or without children to qualify. Those who do not have children must also meet the age, residency and dependency rules. For a child to qualify, they must have lived with the taxpayer for more than six months in 2016. In addition, the child must meet the age, residency, relationship and joint return rules to qualify.
• U.S. Armed Forces members serving in a combat zone have special rules that apply.
• Lower Your Tax or Get a Refund. Filers who qualify for EITC could pay less federal tax, no tax or even get a refund. The EITC could be worth up to $6,269. The average credit was $2,482 last year.
• Use Free Services. For those who do their own taxes, the best way to file a return to claim EITC is to use IRS Free File. Free brand name software will figure out taxes and the EITC automatically. Combining e-file with direct deposit is the fastest and safest way to get a refund. Free File is only available on IRS.gov/freefile.

Taxpayers can also get free help preparing and e-filing their return to claim the EITC. The IRS Volunteer Income Tax Assistance, or VITA program, offers free help at thousands of sites around the country. Get help with health care law tax provisions with Free File or VITA.

• Refunds Held Until Feb 15. Beginning in 2017, if taxpayers claim the Earned Income Tax Credit or Additional Child Tax Credit on their tax return, the IRS must hold their refund until at least February 15. This applies to the entire refund, even the portion not associated with these credits. However, the IRS will begin accepting and processing tax returns once the filing season begins. Taxpayers should file as usual. There is no need to wait until February 15.

For more on EITC, see IRS Publication 596, Earned Income Credit. It’s available in English and Spanish on IRS.gov.

Taxpayers should keep an eye out for IRS EITC Awareness Day. Look for promotional information and locally scheduled events on or around January 27, 2017.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

• Schedule EIC

EITC Awareness Day: Workers May Qualify for Significant Tax Benefit

The Internal Revenue Service today joined partners across the country in promoting the Earned Income Tax Credit on EITC Awareness Day, Friday, Jan. 27, 2017. This campaign, which started 11 years ago, is a nationwide effort to alert millions of low- and moderate-income workers who may be missing out on this significant tax credit.

Millions of taxpayers who earned $53,505 or less last year may qualify for EITC for the first time in 2017, making awareness critical. Local officials and community organizations nationwide are holding events on EITC Awareness Day highlighting this key benefit.

“The EITC is an important anti-poverty tax credit that helps millions of people every year,” said IRS Commissioner John Koskinen. “Even though four out of five eligible workers and families benefit from the EITC, millions more miss out because they don’t know about it or don’t realize they’re eligible. We encourage people to look into whether they qualify.”

Workers, self-employed people and farmers who earned $53,505 or less last year could receive larger refunds if they qualify for the EITC. Eligible families with three or more qualifying children could get a maximum credit of up to $6,269. EITC for people without children could mean up to $506 added to their tax refund. Unlike most deductions and credits, the EITC is refundable. In other words, those eligible may get a refund from the IRS even if they owe no tax. Last year, more than 27 million eligible workers and families received almost $67 billion in EITC; with an average EITC amount of more than $2,455.

The IRS recommends that all workers who earned around $54,000 or less learn about EITC eligibility and use the EITC Assistant to find out if they qualify. The tool will help them determine their filing status, if they have a qualifying child or children, if they qualify to receive the EITC and estimate the amount of the credit they could get. If an individual doesn’t qualify for EITC, the Assistant explains why. A summary of the results can be printed and kept with the worker’s tax papers.

The IRS reminds taxpayers to be sure they have valid Social Security numbers in hand for themselves, as well as for each qualifying child, before they file their return. Moreover, to get the EITC on a 2016 return, they must get these SSNs before the tax-filing deadline (April 18, 2017, for most people or Oct. 16, 2017, for those who get extensions).

How to Claim the EITC

To get the EITC, workers must file a tax return and specifically claim the credit. Free tax preparation help is available online and through a nearby volunteer organization. Those eligible for the EITC have these options:

• Free File on IRS.gov. Free brand-name tax software walks people through a question and answer format to help them prepare their returns and claim every credit and deduction for which they are eligible. Free File also provides online versions of IRS paper forms, an option called Free File Fillable Forms, best suited for taxpayers comfortable preparing their own returns.
• Free tax preparation sites. EITC-eligible workers can seek free tax preparation at thousands of Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites. To locate the nearest site, use the search tool on IRS.gov or the IRS2go smartphone application.

Be sure to bring along all required documents and information.

Refunds

A new law approved by Congress requires the IRS to hold refunds claiming the EITC and the Additional Child Tax Credit (ACTC) until Feb. 15. By law, the IRS must hold the entire refund — even the portion not associated with EITC or ACTC. This change helps ensure taxpayers receive the refund they are owed by giving the agency more time to help detect and prevent fraud.

Even so, taxpayers can still get their refunds sooner by choosing direct deposit. The IRS will begin releasing these refunds on Feb. 15, but taxpayers should not expect to see them deposited into their bank accounts until the week of Feb. 27 – assuming there are no processing issues with the tax return.

Where's My Refund? ‎on IRS.gov and the IRS2Go mobile app will be updated with projected deposit dates for early EITC / ACTC refund filers a few days after Feb. 15.

Avoid Errors: Get It Right

Taxpayers are responsible for the accuracy of their tax return even if someone else prepares it for them. Since the EITC rules are complicated, the IRS urges taxpayers to seek help if they are not sure they are eligible, at a free tax return preparation site, by using Free File software, or from a paid tax professional. Be sure to choose a tax preparer wisely. Deliberate errors can have lasting impact on future eligibility to claim EITC and leave taxpayers with a penalty.

Be sure to reply promptly to any letter from the IRS requesting additional information about EITC. If taxpayers need assistance or have questions, call the number on the IRS letter.

The IRS also reminds taxpayers about the availability of myRA, a free, retirement savings account from the Treasury Department. Taxpayers who have a myRA account may use Free File to deposit their tax refund or a portion of their refund into their myRA account. Use Form 8888 or follow the software product’s instructions.

Beware of Scams

Beware of scams that claim to increase the EITC refund. Scams that create fictitious qualifying children or inflate income levels to get the maximum EITC could leave taxpayers with a penalty.

Normally, if an EITC claim was reduced or denied in the past any reason other than a mathematical or clerical error, taxpayers must file Form 8862, Information to Claim Earned Income Credit after Disallowance, with their next return to claim the credit.

IRS.gov is a valuable first stop to help taxpayers get it right this filing season. Qualify for EITC? See what other tax credits are available such as the Additional Child Tax Credit.

Related items:

• FS-2017-02, Do I Qualify for the Earned Income Tax Credit?
• IRS.gov/eitc, Detailed EITC eligibility rules
• EITC Central at www.eitc.irs.gov, Helpful resources for IRS partners and anyone interested in spreading the word about this benefit.
• Pub. 596, Earned Income Credit (EIC)
• Tax Professionals, Another place for valuable EITC resources and assistance.

IRS, States and Tax Industry Renew Alert about Form W-2 Scam Targeting Payroll, Human Resource Departments

The Internal Revenue Service, state tax agencies and the tax industry today renewed their warning about an email scam that uses a corporate officer’s name to request employee Forms W-2 from company payroll or human resources departments.

This week, the IRS already has received new notifications that the email scam is making its way across the nation for a second time. The IRS urges company payroll officials to double check any executive-level or unusual requests for lists of Forms W-2 or Social Security number.

The W-2 scam first appeared last year. Cybercriminals tricked payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns for tax refunds.

This phishing variation is known as a “spoofing” e-mail. It will contain, for example, the actual name of the company chief executive officer. In this variation, the “CEO” sends an email to a company payroll office or human resource employee and requests a list of employees and information including SSNs.

The following are some of the details that may be contained in the emails:

• Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
• Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).
• I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.

Working together in the Security Summit, the IRS, states and tax industry have made progress in their fight against tax-related identity theft, cybercriminals are using more sophisticated tactics to try to steal even more data that will allow them to impersonate taxpayers.

The Security Summit supports a national taxpayer awareness campaign called “Taxes. Security. Together.” and a national tax professional awareness effort called “Protect Your Clients; Protect Yourself.” These campaigns offer simple tips that can help make data more secure.

Working Grandparents May Be Eligible for EITC

The Internal Revenue Service wants working grandparents raising grandchildren to be aware of the Earned Income Tax Credit (EITC) and correctly claim it if they qualify.

The EITC is a federal income tax credit for workers who don't earn a high income ($53,505 or less for 2016) and meet certain eligibility requirements. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund. The EITC could put an extra $2 or up to $6,269 into a taxpayer’s pocket.

Grandparents and other relatives care for millions of children, but are often not aware that they could claim the children under their care for the EITC. A grandparent who is working and has a grandchild who is a qualifying child living with him or her may qualify for the EITC, even if the grandparent is 65 years of age or older. Generally, to be a qualified child for EITC purposes, the grandchild must meet the dependency requirements.

Special rules and restrictions apply if the child’s parents or other family members also qualify for the EITC. Details including numerous helpful examples can be found in Publication 596, available on IRS.gov. There are also special rules, described in the publication, for individuals receiving disability benefits and members of the military.

Working grandparents are encouraged to find out, not guess, if they qualify for this very important credit. To qualify for EITC, the taxpayer must have earned income either from a job or from self-employment and meet basic rules. Also, certain disability payments may qualify as earned income for EITC purposes. EITC eligibility also depends on family size. The IRS recommends using the EITC Assistant, on IRS.gov, to determine eligibility, estimate the amount of credit and more.

Eligible taxpayers must file a tax return, even if they do not owe any tax or are not required to file. Qualified taxpayers should consider claiming the EITC by filing electronically: through a qualified tax professional; using free community tax help sites; or doing it themselves with IRS Free File.

Many EITC filers will get their refunds later this year than in past years. That’s because a new law requires the IRS to hold refunds claiming the EITC and the Additional Child Tax Credit (ACTC) until mid-February. The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27. Taxpayers claiming the EITC or ACTC should file as soon as they have all of the necessary documentation together to prepare an accurate return. In other words, file as they normally would.

The IRS and partners nationwide will hold the annual EITC Awareness Day on Friday, Jan. 27, 2017 to alert millions of workers who may be missing out on this significant tax credit and other refundable credits. One easy way to support this outreach effort is by participating on the IRS Thunderclap to help promote #EITCAwarenessDay through social media. For more information on EITC and other refundable credits, visit the EITC page on IRS.gov.

Five Tips on Whether to File a 2016 Tax Return

Most people file a tax return because they have to. Even if a taxpayer doesn’t have to file, there are times they should. They may be eligible for a tax refund and not know it.

Here are five tips on whether to file a tax return:

1. General Filing Rules.  In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or a dependent of another person. For example, if a taxpayer is single and under age 65, they must file if their income was at least $10,350. There are other instances when a taxpayer must file. Go to IRS.gov/filing  for more information.
2. Tax Withheld or Paid.  Did the taxpayer’s employer withhold federal income tax from their pay? Did the taxpayer make estimated tax payments? Did they overpay last year and have it applied to this year’s tax? If the answer is “yes” to any of these questions, they could be due a refund. They have to file a tax return to get it.
3. Earned Income Tax Credit.  A taxpayer who worked and earned less than $53,505 last year could receive the EITC as a tax refund. They must qualify and may do so with or without a qualifying child. They may be eligible for up to $6,269. Use the 2016 EITC Assistant tool on IRS.gov to find out. Taxpayers need to file a tax return to claim the EITC.
4. Additional Child Tax Credit.  Did the taxpayer have at least one child that qualifies for the Child Tax Credit? If they do not qualify for the full credit amount, they may be eligible for the Additional Child Tax Credit. Beginning in January 2017, by law, the IRS must hold refunds for any tax return claiming either the EITC or the Additional Child Tax Credit until Feb. 15. This means the entire refund, not just the part related to either credit.
5. American Opportunity Tax Credit.  To claim the AOTC, the taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The credit is available for four years of post-secondary education. It can be worth up to $2,500 per eligible student. Even if the taxpayer doesn’t owe any taxes, they may still qualify. Complete Form 8863, Education Credits, and file it with the tax return. Learn more by visiting the Education Credits web page.

Instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. Taxpayers can also use the Interactive Tax Assistant tool on IRS.gov. They should look for “Do I need to file a return?” under general topics. The tool is available 24/7 to answer many tax questions.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

• Schedule 8812 (Form 1040A or 1040), Child Tax Credit
• Publication 972, Child Tax Credit

Many People in Rural America Qualify for Earned Income Tax Credit

The Internal Revenue Service wants taxpayers living in rural communities to be aware of the Earned Income Tax Credit (EITC) and correctly claim it if they qualify.

Whether living in the big city or a small town, EITC can help. The EITC is a federal income tax credit for working people who don't earn a lot ($53,505 or less for 2016) and meet certain eligibility requirements. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund. EITC can mean up to a $6,269 refund for working families with qualifying children. Workers without a qualifying child could be eligible for a smaller credit up to $506. On average, EITC adds $2,400 to refunds.

Even though household income in many rural areas is below the national average, many of these taxpayers are often not aware that they may qualify for EITC. An eligible taxpayer must have earned income from employment or running or owning a business or farm and meet basic rules. Eligibility also depends on family size, but single workers without a qualifying child who earn under $20,430 may qualify for a smaller credit. Also, certain disability payments may qualify as earned income for EITC purposes. The IRS recommends using the EITC Assistant, on IRS.gov, to determine eligibility, estimate the amount of credit and more.

To get the credit, Taxpayers must file a tax return, even if they do not owe any tax or are not required to file. Qualified taxpayers should consider claiming the EITC by filing electronically: through a qualified tax professional; using free community tax help sites; or doing it themselves with IRS Free File.

Many EITC filers will get their refunds later this year than in past years. That’s because a new law requires the IRS to hold refunds claiming the EITC and the Additional Child Tax Credit (ACTC) until mid-February. The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27. Taxpayers claiming the EITC or ACTC should file as soon as they have all of the necessary documentation together to prepare an accurate return. In other words, file as they normally would.

The IRS and partners nationwide will hold the annual EITC Awareness Day on Friday, Jan. 27, 2017 to alert millions of workers who may be missing out on this significant tax credit and other refundable credits. One easy way to support this outreach effort is by participating on the IRS Thunderclap to help promote #EITCAwarenessDay through social media. For more information on EITC and other refundable credits, visit the EITC page on IRS.gov.

Special Rules Help Many People With Disabilities Qualify for the Earned Income Tax Credit; Up to 1.5 Million Fail to Claim Valuable Benefit

WASHINGTON – The Internal Revenue Service wants taxpayers with disabilities and parents of children with disabilities to be aware of the Earned Income Tax Credit (EITC) and correctly claim it if they qualify.

The EITC is a federal income tax credit for workers who don't earn a high income ($53,505 or less for 2016) and meet other eligibility requirements. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.

The EITC could put an extra $2 or up to $6,269 into a taxpayer’s pocket. Nevertheless, the IRS estimates that as many as 1.5 million people with disabilities miss out on this valuable credit because they fail to file a tax return. Many of these non-filers fall below the income threshold requiring them to file. Even so, the IRS urges them to consider filing anyway because the only way to receive this credit is to file a return and claim EITC.

To qualify for EITC, the taxpayer must have earned income. Usually, this means income either from a job or from self-employment. But taxpayers who retired on disability can also count as earned income any taxable benefits they receive under an employer’s disability retirement plan. These benefits remain earned income until the disability retiree reaches minimum retirement age. The IRS emphasized that social Security benefits or Social Security Disability Income (SSDI) do not count as earned income.

Additionally, taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements. Use the EITC Assistant, on IRS.gov, to determine eligibility, estimate the amount of credit and more.

People with disabilities are often concerned that a tax refund will impact their eligibility for one or more public benefits, including Social Security disability benefits, Medicaid, and Food Stamps. The law is clear that tax refunds, including refunds from tax credits such as the EITC, are not counted as income for purposes of determining eligibility for benefits. This applies to any federal program and any state or local program financed with federal funds.

The best way to get the EITC is to file electronically: through a qualified tax professional; using free community tax help sites; or through IRS Free File.

Many EITC filers will receive their refunds later this year than in past years. That’s because a new law requires the IRS to hold refunds claiming the EITC and the Additional Child Tax Credit (ACTC) until mid-February. The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27. Taxpayers claiming the EITC or ACTC should file as soon as they have all of the necessary documentation together to prepare an accurate return. In other words, file as they normally would.

The IRS and partners nationwide will hold the annual EITC Awareness Day on Friday, Jan. 27, 2017 to alert millions of workers who may be missing out on this significant tax credit and other refundable credits. One easy way to support this outreach effort is by participating on the IRS Thunderclap to help promote #EITCAwarenessDay through social media. For more information on EITC and other refundable credits, visit the EITC page on IRS.gov.

See Also:

• Publication 3966, Living and Working with Disabilities
• Publication 907, Tax Highlights for Persons with Disabilities

Seven Reasons Taxpayers Should E-file Their Taxes in 2017

Taxpayers who still file paper returns may find now is the best time to switch to e-file. Last year over 85 percent of taxpayers filed their taxes electronically. E-file is the fastest and safest way to file.

Here are the top seven reasons a taxpayer should file electronically in 2017:

1. Accurate and Easy. IRS e-file is the best way to file an accurate tax return. The tax software helps taxpayers avoid mistakes by doing the math for them. It guides users through each section of a tax return. E-file is easier than doing taxes by hand and mailing paper tax forms.
2. Safe and Secure. IRS e-file meets strict security guidelines. It uses modern encryption technology to protect tax returns. The IRS continues to work with states and tax industry leaders to protect tax returns from refund fraud. This new effort has put more safeguards in place to make tax filing safer than ever before. The IRS has processed more than one billion e-filed returns safely and securely.
3. Convenient and Often Free. Taxpayers can e-file for free through IRS Free File. Free File is only available on IRS.gov. Taxpayers may qualify to have their taxes e-filed for free through IRS volunteer programs. Volunteer Income Tax Assistance offers free tax preparation for those earning $54,000 or less. Tax Counseling for the Elderly generally helps people who are age 60 or older. Taxpayers can buy commercial tax software or ask their tax preparer to e-file their tax return. Most paid preparers have to file their clients’ returns electronically.
4. Faster Refunds. In most cases, e-file prevents mistakes and helps people get their refund faster. The quickest way to get a refund is to combine e-file with direct deposit into a bank account. The IRS issues more than nine out of 10 refunds in less than 21 days – however, some returns need further review and take longer.
5. Prior-Year Tax Return. Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
6. Health Care Coverage Reporting. IRS e-file can help with tax provisions of the health care law. The software will walk users through each line on the tax form that relate to the Affordable Care Act.
7. Payment Options. If taxpayers owe taxes, they can e-file early and set up an automatic payment on any day until the April 18 deadline. They can pay electronically from their bank account with IRS Direct Pay. Other payment options include electronic funds withdrawal and payment by debit or credit card. Visit IRS.gov/payments for details.

What to Do If You Suffer a Data Breach or Other Security Incident

Tax professionals are increasingly targets of cybercriminals seeking access to client data. Criminals use the stolen information to file fraudulent tax returns for refunds. Be prepared to protect your clients and yourself by taking a few critical steps.

Should you experience a data compromise, there are certain basic steps you should take. For a comprehensive list of security actions, consult a security professional. Also see Data Theft Information for Tax Professionals on IRS.gov.

Preliminary steps include:

Contact the IRS and law enforcement:

• Internal Revenue Service - Report client data theft to your local IRS Stakeholder Liaison. Liaisons will notify IRS Criminal Investigation and others within the agency on your behalf. Speed is critical. If reported quickly, the IRS can take steps to block fraudulent returns in your clients’ names.
• Federal Bureau of Investigation – Contact your local office.
• Secret Service – Contact your local office (if directed).
• Local police – File a police report on the data breach.

Contact states in which you prepare state returns:

• State Tax Agencies - Contact each state in which you prepare returns
• State Attorneys General - Contact each state in which you prepare returns. Most states require that the attorney general be notified of data breaches. This notification process may involve multiple offices.

Contact experts:

• Security expert – They can determine the cause and scope of the breach, what to do to stop the breach and prevent further breaches from occurring.
• Insurance company – Report the breach and check if your insurance policy covers data breach mitigation expenses.

Contact clients and other services:

• Federal Trade Commission offers tips and templates for businesses that suffer data compromise, including suggested language for informing clients.
• Clients – Send an individual letter to victims to inform them of the breach but work with law enforcement on timing. Remember that you may need to contact former clients if their prior year data was still in your system.
• Your tax software provider – They may need to take steps to prevent inappropriate use of your account for e-filing.
• Your web site/client portal provider(s) – It’s possible that your firm and client passwords may have been compromised and need to be reset.
• Federal Trade Commission offers tips and templates for businesses that suffer data compromise, including suggested language for informing clients.
• Credit/ID theft protection agency - Certain states require offering credit monitoring/ID theft protection to victims of ID theft.
• Credit bureaus – Notify them if there is a compromise. Clients may seek their services.

The IRS reminds tax professionals that toll-free assisters cannot accept third-party notification of tax-related identity theft. Clients should file a Form 14039, Identity Theft Affidavit, only if their electronic return is rejected as a duplicate or they are directed to do so.

This tax tip is one in a series of special security tax tips intended to raise awareness for tax professionals. The “Protect Your Clients; Protect Yourself” campaign is an initiative of the Security Summit. The Security Summit is a joint project by the IRS, states and the tax community to combat identity theft. Due to the sensitive client data held by tax professionals, cybercriminals increasingly are targeting the tax preparation community.