Category Archives: Child Tax Credit

Summer “Tax School” is in Session. Concepts for Parents of Children Getting a Job This Summer

Summer break is here and there are no more classes. The kids still have one more class, Tax Education. Now you can play teacher and educate your children that taxes are deducted from their paychecks.

Here are a few tips.

· Government regulations require employees that start a new job to complete a Form W-4, Employee’s Withholding Allowance Certificate. Employers use the W-4 form to calculate the amount of Federal Tax to deduct from an employee’s salary. Generally, if the child is your dependent and expects to earn less than $3,700 this year there will be no Federal Tax Liability only Social Security should be deducted. To be exempt from having Federal Taxes deducted there are two conditions. First there was no tax due last year and all Federal Tax was refunded. Second this year the child expects a full refund of all federal income tax withheld because they expect to have no tax liability.

· The work may be as a valet, waitress, or a bellhop. Tip income is taxable for Social Security and Federal Taxes.

· Some young people take work doing errands, lawn cutting, babysitting, and etc. The IRS considers this Self Employment. When someone works for themselves, and no taxes are deducted by the employer they are considered the employer and employee for Social Security purposes. The tax term is Self-Employed. This form of income can cause higher than expected tax bills.

· The employment taxes from being self employed start when the net profit is more than $400, which is a very low number. Self-employment taxes are currently 13.3% of profits.

For example your child earns $3,700 doing paper delivery.

End of year Federal Tax – $0 – Self-Employment Tax – $492

Form 1040, Schedule SE, is the form the Self-Employment Tax is calculated on.

There are unique rules for children under 18 who deliver newspapers. Newspaper delivery is automatically considered self-employed by the IRS not considering age; if the following conditions are present:

You are in the business of delivering newspapers.

Compensation is associated to sales different from the number of hours worked.

There is a written contract that has language the worker is not considered an employee for taxes.

Children under 18 that deliver newspapers are generally exempt from Self Employment Taxes.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

South Florida CPA Firm

Advertisements

Leave a comment

Filed under Child Tax Credit, Education Tax Credit, Tax Planning

Remember the Child and Dependent Care Tax Credit When Making Summer Plans

During the summer many parents may be planning the time between school years for their children while they work or look for work. Safe Harbor Accounting wants to remind taxpayers that are considering their summer agenda to keep in mind a tax credit that can help them offset some day camp expenses.

  • Your child or dependent must meet certain qualifications,
  • Your daycare provider must meet certain qualifications,
  • You must have earned income,
  • The care provided must enable you to work or to look for work, and
  • You must reduce your eligible daycare expenses by any amounts provided by a dependent care benefits plan through your employer.

The Child and Dependent Care Tax Credit is available for expenses incurred during the summer and throughout the rest of the year. Here are some facts the we want you to know about the credit:

1. Children must be under age 13 in order to qualify.

2. Taxpayers may qualify for the credit, whether the childcare provider is a sitter at home or a daycare facility outside the home.

3. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

4. The credit is on a sliding scale in accordance with wages. The child and dependent care tax credit is worth 20% to 35% of your day care expenses. The credit is phased out to 20% as income goes higher.

5. Expenses for overnight camps or summer school/tutoring do not qualify.

6. Save receipts and paperwork as a reminder when filing your 2012 tax return. Remember to note the Employee Identification Number (EIN) of the camp as well as its location and the dates attended.

7. The cost of sending your child to an overnight camp is not considered a work-related expense.

8. A daycare program can include a wide variety of activities geared to children’s needs and interests. The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us CPA Firm

Leave a comment

Filed under Child Tax Credit, Tax Planning